Affordable Care Act: How to classify employees
By Jay Starkman and Dorothy Miraglia-King
Under the Affordable Care Act, the rules for classifying employees, or calculating the number of hours worked is no easy task. To avoid errors and costly penalties, employers must know exactly how to define a full-time employee vs. a part-time worker - and everything in between.
Hours of service = each hour an employee is paid or entitled to be paid for actual hours worked or paid leave (including vacation, holiday, illness, disability, layoff, jury duty, and military leave).
- A full-time employee works an average of 30+ hours of service per week (130 hours per calendar month) and is reasonably expected to work.
- A part-time employee works an average of less than 30 hours of service per week and is reasonably expected to work.
Other Employee Classifications - consider the following:
- The typical length of employment for the position is 6 months or less.
- The period of employment begins at about the same time each year.
Seasonal employees may not need to be treated as full-timers even if they will work 30+ hours of service per week during the season. Verification of hours and testing is needed, but once validated, employers are not required to offer health care coverage to seasonal workers.
Variable Hour Employees
If at the time of hire, an employer cannot reasonably determine whether an employee is expected to work an average of 30+ hours of service per week, the employer may categorize that employee as a variable hour employee. This determination may be based upon:
- Whether the employee is replacing an employee who was or was not a full-time employee.
- The extent to which employees in the same or comparable positions are or are not full-time employees.
- Whether the job was advertised, communicated or documented (for example, through a contract or job description) as requiring the individual to work more or less than 30 hours of service per week.
Note that a variable hour employee who averages 30+ hours of service per week during the initial measurement period must be treated as a full-timer and offered healthcare coverage.
Employees of temporary staffing agencies
A staffing agency may use the following criteria to help determine if a new employee is a variable hour employee:
- Does the individual have the right to reject temporary placements?
- Are there typically periods in which no placement offers are extended creating gaps in service, and
- Do placements typically last less than 13 weeks of service?
Short-term and high-turnover positions (temporary employees)
The IRS does not allow any special treatment for employers with individuals who may be employed on a short-term assignment (generally 12 months or less) or for employees in a position where termination of employment generally is expected after a short period of time (such as 6 months).
Although this is only a short list of potential employee classification issues under ACA, employers should carefully review the make-up of their workforce, develop a strategy to address any issues and prepare for the Shared Employer Responsibility reporting requirements.