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Measure Now to Avoid a Flag on 'Play or Pay'

While the IRS granted large employers an extra year before facing possible penalties under the employer shared responsibility provisions of the Affordable Care Act, there is still plenty of conditioning for HR to do in preparation for the 2015 season.

Thursday, September 19, 2013
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Determining which employees are full-time -- those working 30 hours or more per week -- is essential for all large employers, even those who don't want to play ball.  Penalty amounts for employers with no health plan are based on the number of full-time employees, so even employers who thought they might be watching from the stands will need to engage in measuring which employees are subject to the penalty. And employers with health plans still may face fines if full-time employees buy coverage on the public exchange with the assistance of premium tax credits.

The process to determine who is full-time requires a measurement period followed by administrative and stability periods. Employers need to be aware of how hours will be counted under the healthcare reform mandate and must not forget to include breaks in employment, such as unpaid leave.

Knowing the Rulebook

When employer penalties become real in 2015, fines -- or excise taxes -- will come in two flavors. The "A" penalty (from section 4980(a) of the ACA) is based on the total number of full-time employees, minus 30, and the fine is $2,000 per head per year. The "B" penalty (from 4980(b) of the ACA) is $3,000 per head but only applies to full-time employees who receive premium tax credits in the public exchange. 

Employers that want to avoid penalties should:

*           Offer minimum essential coverage to at least 95% of full-time employees;

*           Ensure coverage meets minimum value standards; and

*           Make coverage affordable to full-time employees.

Creating a Playbook

Employers need to establish a measurement period to determine an ongoing employee's average hours per week. This measurement period cannot be less than three months or more than 12 months. An administrative period of no more than 90 days can come between the measurement and stability periods, to give the employer time to figure out who is in and who is out for coverage in the upcoming stability period, and to get those employees enrolled or notified of upcoming disenrollment.

After the administrative period is a coverage season called the stability period, which must be as long as the measurement period, and in no event less than six months. During the stability period, the IRS assesses penalties based on the "A" penalty or the "B" penalty, but in both cases, the status of a worker as full-time or part-time must be determined to calculate possible penalties. 

Employers are still under a tight time frame to build technology and administrative solutions to track hours for these employees. For employers planning to use a 12-month measurement and 12-month stability period for testing employee eligibility for 2015, systems will still need to be operational this fall. Moreover, this process will need to occur every year, so employers need to have a system in place that is accurate and efficient.

Keeping Score on Paid and Unpaid Hours

Measuring the hours to determine a full-time vs. part-time employee may not be as simple as just looking at the number of hours worked. Measurement must include the hours employees are paid and not working, such as vacation or during a layoff, to determine coverage eligibility.

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Unpaid leave hours, however, can vary. If the employer is subject to the Family and Medical Leave Act, the employer must either credit the employee with unpaid FMLA leave hours, or exclude the leave period when averaging the employee's hours over the measurement period. Similar rules apply if an employee takes an unpaid leave for jury duty or military service. However, these special crediting rules do not apply if an employee takes another type of leave of absence.

Other breaks in employment are not as clear-cut. Basically, if the unpaid break in employment is less than four weeks, then employers must treat the worker as an ongoing employee, but they do not have to count those leave hours during the measurement period.

If the employee is off work for at least 26 consecutive weeks, then the employer may treat the employee as a new hire upon return. There is another optional "rule of parity" for employees with no credited hours over a period of at least four but less than 26 weeks. Under the rule of parity, if the time of absence is at least four weeks and is longer than the employee's previous period of service, then the employer can treat the employee as a new hire upon return.

Other Mandates Still On Schedule

Despite the delay in the ACA mandatory reporting requirements, employers should still plan to implement many other healthcare reform provisions, including the required public exchange notice to employees, by the Oct. 1, 2013, deadline.

In the meantime, by implementing identification and reporting systems to carefully measure and analyze eligible employee hours, employers can be assured that they will be running an offense to avoid shared responsibility penalties under the ACA when they become effective in 2015.

Mary Bauman is an attorney at the law firm Miller Johnson in Grand Rapids, Mich., and Don Garlitz is executive director of bswift Exchange Solutions.

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