Designation Determined by Hours Worked, Not Employer Classification

The employer shared responsibility provisions of the Affordable Care Act (also known as “pay or play”) require applicable large employers (ALEs)—generally those with at least 50 full-time employees, including full-time equivalent employees (FTEs)—to offer affordable health insurance that provides a minimum level of coverage to full-time employees (and their dependents) or pay a penalty tax if any full-time employee is certified to receive a premium tax credit for purchasing individual coverage on the Health Insurance Marketplace. The Internal Revenue Service (IRS) recently addressed a question regarding how an employer’s classification of employees as part-time or seasonal impacts full-time employee calculations under the pay or play provisions.

Determining ‘Full-Time Employees’

For purposes of pay or play, an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week, or has 130 hours of service in a calendar month (130 hours of service in a month is treated as the monthly equivalent of at least 30 hours of service per week).

Generally, an hour of service means:

Each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and
Each hour for which an employee is paid, or entitled to payment, for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence.

Employer Classification of ‘Full-Time Employee’ Not Determinative

According to the IRS, if an employer develops a policy restricting part-time or seasonal employees from working more than 29 hours of service in any week, and an employee in either employer-based classification actually works an average of 30 or more hours of service per week during any given month, this could potentially trigger (or increase the amount of) the employer’s liability for an assessable payment under pay or play for that month.

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