IRS Issues Guidance Regarding Determining Full-Time Employees for Purposes of Health Reform Employer Shared Responsibility Requirements
On August 31, 2012, the IRS issued Notice 2012-58 (the “Notice”), which provides guidance for employers on determining which employees are treated as full-time employees for purposes of the employer shared responsibility provisions of the Patient Protection and Affordable Care Act (“PPACA”). The employer shared responsibility provisions, which are contained in new Section 4980H of the Internal Revenue Code, provide that an employer with 50 or more full-time equivalent employees could be subject to a financial penalty if any low-income, full-time employee is certified to receive a premium tax credit or cost-sharing reduction payment in connection with health insurance coverage purchased through an American Health Benefit Exchange beginning January 1, 2014. Generally, this may occur when either: (1) the employer does not offer minimum essential coverage under an employer-sponsored plan to its full-time employees (and their dependents); or (2) the employer offers minimum essential coverage to its eligible employees and their dependents, but that coverage is unaffordable relative to an employee’s household income (meaning the employee’s contribution toward the cost of the coverage exceeds 9.5% of his or her gross income) or does not provide minimum value (meaning that at least 60% of the allowable costs under the plan are paid by the plan).
Under the Notice, which expands and modifies guidance previously issued by the IRS, employers may use a “look-back” period of up to 12 months to determine whether new variable-hour employees or seasonal employees are full-time. An employee is a variable-hour employee if at the outset of his or her employment it cannot reasonably be determined whether he or she will work an average of 30 hours per week. The Notice also provides employers with the option to use an administrative period of up to 90 days in which to determine which employees are eligible for coverage and to notify them of such eligibility, and provides guidance on transitioning new employees from the new employee determination method to the determination method chosen by the employer for ongoing employees. The Notice does not address questions previously raised to the IRS regarding the application of these requirements to multiemployer plans.
Employers may rely on the guidance contained in this Notice at least through the end of 2014.