March 18, 2013 - Seasonal and part-time employees are included in the employer’s calculation of the number of employees under the Patient Protection and Affordable Care Act, also known as PPACA, Obamacare, and the Affordable Care Act. First, it is important to understand how the Affordable Care Act counts employees in the calculation to determine if an employer is a large employer covered under the Act. Large employers are businesses with 50 or more full time or full-time equivalent employees. A full-time employee has worked on average 30 hours a week. Part-time employees, who work less than 30 hours a week, are counted as full-time equivalent workers as well. To calculate full-time equivalent employees, add the number of hours part-time employees worked (include paid vacation, sick pay, holiday, layoff, jury duty, military leave, or leave of absence) in a month and divide that number by 120. An employer may elect to lookback at its employment history for a 12 month period as a safe harbor to determine if the Affordable Care Act is triggered.
Seasonal Workers: Seasonal workers affect an employer in several ways. First, seasonal and part-time workers affect the number of employees a company has for the purposes of whether the Affordable Care Act applies. Employers may elect to measure their employees over an annual period or “lookback” and take advantage of a safe harbor on which they can rely. If an employer elects the 12-month lookback period as a safe harbor, it is possible that seasonal employees can fall out of the full-time characterization because the hours worked by a seasonal employee is averaged over a period that includes months in which they performed little or no work. In addition, if the number of an employer’s full-time equivalent employees is more than 50 on 120 or fewer days, and seasonal workers were the only reason the employer meets the 50-employee threshold, such seasonal workers do not count.
In addition to affecting the determination that an employer is subject to the Affordable Care Act’s requirements, seasonal workers may affect the employer’s potential penalties. An employer who does not offer minimum essential coverage to substantially all of its full time employees and their dependents (kids under 27) will be subject to the penalty IF an employee obtains subsidized exchange coverage. “Substantially all employees” means 95% of full-time employees (or, at least 5 employees).
Affordability: An employee may obtain subsidized coverage if his or her household income is between 100-400 percent of the federal poverty level and is not eligible for Medicaid and his or her employer offers coverage that fails to meet the minimum value or affordability test or his or her employer does not offer coverage. The minimum value test is met if your plan covers at least 60% of the total allowed cost of expected benefits. An IRS calculator is expected to be created for this purpose. The affordability test requires that your employee pay no more than 9.5% of his or her household income for his or her own coverage (not including coverage of dependents). Since employers do not know what an employee’s household income is, the IRS has stated that employers may use an employee’s W-2 reported wages as a safe harbor.
Yearly Calculations Save Large Employers: If an employer is determined to be “large,” it may still have the opportunity to avoid offering insurance coverage to seasonal workers, even if they are full-time during the season in which they work if they do not average more than 30 hours per week in a yearly calculation. If an employer reasonably classifies an employee as “seasonal” and tracks his or her hours over the full measurement period (for instance, a year), and such workers average less than 30 hours per week over that period, the employer does not need to classify them as full-time. To take advantage of this provision, define your seasonal workers as seasonal, tell them that they are characterized as seasonal, limit their employment to a reasonable season, and designate them as seasonal when you perform your calculation for large employer status and eligibility.
Waiting Periods: The Affordable Care Act requires employers to offer seasonal full-time workers health insurance coverage, after a waiting period up to 90 days, if applicable. Employers of more than 200 full-time employees are required to offer automatic enrollment to new full-time employees, including full-time seasonal employees. Willful violations of this provision could result in a fine up to $10,000 and imprisonment up to six months. So, one option for employers with less than 200 full-time employees is to employ the seasonal worker for less than 90 days. Also, because the Affordable Care Act does not apply to part-time employees, the Act may provide a strong incentive for employers to hire seasonal employees on a part-time basis only. Currently, many employers who hire seasonal workers offer limited “mini-med” medical plans to seasonal employees. However, these plans may not meet the Affordable Care Act’s requirements and should be individually reviewed.
The Penalties: An employer subject to the requirements of the Affordable Care Act who does not provide minimum essential coverage will be penalized if an employee obtains subsidized coverage. If the employer provides insurance but one or more of its employees obtains subsidized coverage, the employer will be subject to a tax penalty. In 2014 the penalty will be $2,000 x number of full-time employees in excess of 30. However, it will be the LESSER of that calculation and $3,000 multiplied by the number of full-time employees who have obtained subsidized coverage (per year).
Before the penalty is assessed, proposed regulations indicate that employers will receive notice that their employee receives subsidized Exchange coverage and have an opportunity to respond. If an employer does not offer insurance, and even one employee receives subsidized coverage, the employer will pay $2,000 per employee (minus the first 30 employees). In either case, the penalty will grow each year for the first several years.