April 2016 CUPA NJ The Brave New World of Measurement and Stability Periods Elizabeth Patterson Managing Consultant NFP does not provide legal, tax or accounting consultation or advice. NFP has provided you with this information and/or material strictly in its capacity as an employee benefits consulting firm. Regulatory, compliance and related content is for general informational purposes. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
Problems to Solve Do You? Have a clear way to identify full-time and not full-time employees at the time of hire? Understand how employee status changes should be handled to minimize the ACA penalty? Have controls in place to monitor hours worked by employees you do not expect to be full-time? Have a system in place for new hires who reach the end of their measurement period? Have a way to track leave such as FMLA, USERRA, worker s compensation and disability leave? Understand how the break in service rules work?
Employer Penalty Refresher 4980H(a): Employers who do not offer medical coverage to 95%+ (70% in 2015) of full-time employees pay $167 per employee per month less first 30 (80 in 2015) 4980H(b): Employers who offer coverage pay $250 per employee per month if: Coverage does not meet 60% minimum value (MV) OR is not affordable (single coverage < 9.5% wages) AND employee receives gov t help at marketplace
Definitions
Types of Employees Full-Time Employees - Reasonable expectation that employee will work 30 hours per week Part-Time Employees - No expectation that employee will work 30 hours per week Variable Hour Employees - Whether or not an employee will work 30 hours during the initial measurement period is not known at point of hire. (Uncertainty cannot be a question of tenure [turnover]) Seasonal Employees - Employment is 6 months or less per calendar year and recurs at approximately the same time each year - can be treated as variable hour employees (exception to tenure restriction)
Special Higher Education Employees Adjunct professors Research assistants Study abroad professionals Curriculum development Coaches Resident advisors Student workers not on Federal Work Study
Hour of Work Hour of Work 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 by the employer 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 paid STD, Salary Continuation, LTD and pretax employee paid disability all count as payment Employee paid post-tax disability does not
Hour of Work On-Call Hours - Pending future regulations, employees should be credited with an hour work if they are paid for that hour (even at reduced rates of $2 for example) or if they remain on the employer s premises or if the employee s activities while on call are subject to substantial restrictions that prevent the employee from using the time effectively for the employee s own purposes.
IRS Guidance for Adjunct 2 ¼ hours of service per week for each hour teaching in the classroom Represents combination of teaching, classroom time and preforming related tasks like class preparation and grading exams or papers Example: Adjunct faculty teaches 12 credits is 27 hours (12 x 2.25) 1 hour service per week for each additional hour outside of the classroom faculty member spends performing duties Required office hours Attendance at faculty meetings IRS guidance states employers may use other reasonable methods for crediting hours of service reasonable based on facts and circumstances
Challenges for Higher Education How to account for hours worked that are not currently tracked? Lab hours or proctoring exams for example or recruiting trips or study abroad Are adjuncts truly variable? Under what circumstances? Contracting for specific hours may result in employee defined as full-time for that semester. Employee will change status from full-time to parttime/variable by semester 10
Identifying Full-Time Employees
Employer Mandate An employee s status as full-time or not can be determined using one of two methods: Monthly Measurable Employees - Retrospectively at the end of each month Look-Back Measurable Employees - Prospectively using a look-back measurement period of 3 to 12 consecutive months (except for full-time new hires)
Two Measurement Methods Monthly Measurement Always retrospective If employee works 130 hours in that calendar month Then employee is full-time for that calendar month Concept of stability period does not apply Look-Back Measurement New employees are treated differently based on expectation of full-time status All Ongoing employees are subject to a look-back measurement period Employee is full-time during stability period if measured as full-time during look-back period
Permissible Classes Employers can use different measurement methods based on various employee classifications Salaried employees and hourly employees Employees whose primary places of employment are in different States Collectively bargained employees and non-collectively bargained employees Each group of collectively bargained employees covered by a separate collective bargaining agreement
Permissible Classes What s Missing? Employers cannot use different methods based on expectation of full-time, part-time or variable Most of our clients are using the same method for all employees Monthly measurable employers who have very few part-time or variable employees OR who have tight controls regarding hours worked by part-time employees Look-Back measurable all other employers
Look-Back is Hybrid New Employee An employee who has been employed for less than one standard measurement period Ongoing Employee An employee who has been employed for at least one standard measurement period Within both types an employee can be: Full-time Part-time Variable/Seasonal
Look-Back is a Hybrid New employees expected to be fulltime New employees variable hour, parttime or seasonal Considered monthly measurable until completing a standard measurement period Placed in initial measurement period shortly after date of hire In stability period following standard period In stability period following initial measurement period and standard measurement period
Nuts and Bolts of Measuring
Sample 12 Month Measurement Ongoing employees Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Measurement Period 1 Administration Stability 1 Measurement Period 2 Administration Stability 2 New Hire Jim who will work variable, part-time or seasonal hours Measurement Period 1 A Stability 1 Overlapping Measurement Period 2 Administration Overlapping Stability for Overlapping Measuremen Measurement Period 3 Administra New Hire Sally who will work full-time Monthly Measurable Measurement Period 1 Administration Stability 2 Measurement Period 2 Administra In overlapping stability period, employee will keep benefits if they were awarded for stability period 1, even if he is not eligible for benefits in stability period 2. Similarly, if employee was NOT eligible for benefits stability period 1, but is in stability period 2, then the employee will get benefits for all of stability period 2.
New Hire Full-Time Hired January 1, 2015 Standard Measurement Period for CY 2016 is Oct 2014 to Oct 2015 Offered benefits 1st month following 60 days = Apr 2015 Jan 2015 Monthly Measurable Dec 2016 Oct 7, 2015 Oct 6, 2016 CY 2017 First Full Standard Measurement Period Stability Period
New Hire Part-time or Variable Hired January 1, 2015 Offered benefits Feb 2016 if measured to be FT Jan 5, 2015 Jan 6, 2016 Measurement Feb 16 to Jan 17 Stability Oct 7, 2015 Oct 6, 2016 Measurement CY 2017 Stability
Ongoing Employee Any Type Hired January 1, 2015 Oct 7, 2015 Oct 6, 2016 Measurement CY 2017 Stability Oct 7, 2016 Oct 6, 2017 Measurement CY 2018 Stability
Special Provision for Higher Education
Complicating Details Penalty / Limited Non-Assessment Period a period of time during which an employer will not be subject to an assessable payment for a specific employee Breaks in Service If an employee has a break in service a new measurement, stability or penalty non-assessment period does not start unless the break is either: At least 4 weeks and longer than the tenure of service (i.e. rule of parity) 26 weeks (13 weeks if not education) Status Changes - Changes in hours worked or job position during stability period do not result in a change of status for benefit penalty purposes
Handling Breaks In Service Breaks of 4 weeks or less can be credited at 0 hours Breaks of 5 to 26 weeks must be averaged based on employment prior to the break, but credited hours are capped at 501 hours Parity rule may used which adjusts the 26 week requirement Breaks of 27 weeks or more create of new period of employment Breaks in service for FMLA, USERRA and Jury Duty are treated on an averaging basis and are considered outside the 501 hour cap
OPTIONAL - Rule of Parity Rule of Parity - For purposes of determining the period after which an employee may be treated as having terminated employment and having been rehired, an employer may choose a period, measured in weeks, of at least four consecutive weeks during which the employee was not credited with any hours of service that exceeds the number of weeks of that employee s period of employment immediately preceding the period, and that is shorter than 26 weeks
Penalty Non-Assessment Periods Always a Penalty Non-Assessment Period If an employee is hired on any day of the month EXCEPT for the first day of the month The balance of that month is a nonassessment period Even if the employee is not offered coverage
Penalty Non-Assessment Periods Employees subject to Look-Back Measurement who are reasonably expected to be Full-Time The first day of the month that follows Three full calendar months of employment If coverage is offered by end of period
Penalty Non-Assessment Periods Employees subject to Look-Back Measurement who are Variable hour, Part-Time or Seasonal Initial measurement period and Associated administration period If coverage is offered by end of period
Examining Status and Status Changes
Penalty Non-Assessment Periods Change in status to Full-Time for New Employees subject to Look-Back Measurement who were hired as Variable, Part-Time or Seasonal The first day of the month that follows Three full months from the date of the status change If coverage is offered by end of period Or, if sooner and the employee was measured as fulltime, the first day of the stability period that follows the initial measurement period
Example 1 New Employee Not in Stability Period Employee hired on January 1, 2015 as a PT adjunct employee: Transferred to FT instructor on August 15, 2015 Benefits begin 1 st of month following 60 days from date of transfer or November 1 Employee remains monthly measurable until completion of Oct 2015 to Oct 2016 measurement
Example 2 New Employee Not in Stability Period Employee hired on January 1, 2015 as a PT adjunct employee: Transferred to FT instructor on Dec 22, 2015 If measured as FT for initial measurement period ending Jan 5, 2016, benefits begin Feb 2016 If measured PT for initial measurement period, benefits begin 1 st of month following 60 days from date of transfer or Apr 1 Employee remains monthly measurable until completion of Oct 2015 to Oct 2016 measurement
Example 3 New Employee In Stability Period Employee hired on January 1, 2015 as a PT adjunct employee: Measured as PT for initial stability period beginning Feb 1, 2016 Transfers to FT on August 1, 2016 Employee retains PT status for purposes of the ACA for balance of stability period If employee measures as FT during standard measurement period for CY 2017, then employee becomes FT on January 1, 2017 If employee measures as v during standard measurement period for CY 2017, then employee remains PT for CY 2017 stability period
Example 4 New Employee In Stability Period Employee hired on January 1, 2015 as a variable hour adjunct employee: Measured as FT for initial stability period beginning Feb 1, 2016 Transfers to PT research assistant on August 1, 2016 Employee retains FT status for purposes of the ACA for balance of stability period If employee measures as FT during standard measurement period for CY 2017, then employee remains FT on January 1, 2017 If employee measures as PT during standard measurement period for CY 2017, then employee becomes PT for CY 2017 stability period
Example 5 New Employee - Not in Stability Period Employee hired on January 1, 2015 as a FT instructor: Transferred to PT or variable hour adjunct instructor on August 15, 2015 remains monthly measurable If benefits are discontinued on August 15 Employee works less than 30 hours per week, no worries Employee picks up an extra lab or class or curriculum development project and hours increase for a month, then that month is a penalty risk If hours increase to full-time for January semester, then employee is a penalty risk for entire semester
Example 5 New Employee - Not in Stability Period A conservative approach is to wait until employee is PT for 3 months before terminating benefits per optional rule while in a stability period Employee completes first standard measurement period that runs Oct 15 to Oct 16 for CY 2017 At that time, the employee s FT or PT status is as measured Problem for Higher Education An argument can be made that when the employee s expected hours increased to FT on January 1, then that was a status change to FT and benefits should be offered the first of the month following the status change
What About Ongoing Employees? Ongoing employees should be simple If they are FT in the stability period, then they remain FT, no matter what If they are PT in the stability period, then they remain PT, no matter what An employer can be more generous and offer benefits when the employee s status changes to FT An employer can change the cost of coverage when an employee s status changes to PT
Example 6 Ongoing Employee In Stability Period Employee completed standard measurement period for CY 2016 and measured as PT averaging 20 hours per week as a PT adjunct Employee s status changes to FT instructor in August of 2016 with hours averaging 32 Employee remains ACA PT Employee measured Oct 15 to Oct 16 for 2017 averaging 22.5 hours, remaining ACA PT for 2017 Employee measured Oct 16 to Oct 17 for 2018 averaging 32 hours, finally becoming ACA FT
Example 7 Ongoing Employee Employee hired as FT and completed standard measurement period for CY 2016 and measured as FT averaging 38 hours per week Employee s status changes to PT adjunct in August of 2016 with hours averaging 20 Employee remains ACA FT Employee measured Oct 15 to Oct 16 for 2017 averaging 35 hours, remaining ACA FT for 2017 Employee measured Oct 16 to Oct 17 for 2018 averaging 20 hours, finally becoming ACA PT
Example 7 Ongoing Employee Optional Exception for Employee In A Stability Period as FT If employee was hired as FT and offered benefits by first of the month following 3 calendar months, then employee can change to monthly measurable once the employee has been PT for 3 consecutive calendar months Employee remains monthly measurable until the employee has completed on standard measurement period as monthly measurable
Example 7 Ongoing Employee Optional Exception Employee in stability period measured as FT goes PT in August 2016 Employee measures as PT for September, October and November, so becomes ACA PT and benefits are terminated Dec 1, 2016 Employee remains monthly measurable until completion of Oct 16 to Oct 17 standard measurement period is completed and 2018 stability period begins Employees enters stability period and stops being monthly measurable in January 2018 If hours exceed 30 / week in any month Dec 16 to Jan 18 employee is a penalty risk in that month
New Hire Flow Chart
New Hire Flow Chart Full Time Was EE Employed in Prior 26 Weeks? Yes Was Employee in Stability Period? No Yes Employee retains status in stability period; if FT benefits begin immediately or 1 st of month following hire No Was employee FT when last employed? Benefits begin after EWP Yes Benefits begin immediately or 1 st of month following hire No Initial measurement period resumes using prior start date and weeks with 0 hours use average hours prior to break
New Hire Flow Chart Part Time or Variable Was EE Employed in Prior 26 Weeks? Yes Was Employee in Stability Period? No Yes Employee retains status in stability period; if FT benefits begin immediately or 1 st of month following hire No Was employee FT when last employed? Initial measurement period begins Yes Employee is monthly measurable until employed for one standard measurement No Initial measurement period resumes using prior start date and weeks with 0 hours use average hours prior to break
Measurement Challenges
Managing Breaks in Service 2014 2015 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 130 130 150 0 0 0 0 0 0 0 150 130 130 130 90 Weeks Out 4 8 13 17 21 25 30 Employee is considered a new hire because the break in service is more than 26 weeks 2014 2015 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 120 120 90 0 0 0 0 0 80 80 60 135 108 108 120 Weeks Out 4 8 13 17 21 25 30 Employee remains in same stability period upon return Employee worked 685 hours in 7 months (31 weeks) Employee s average hours worked for the 7 months worked is 22.1 22.1 * 21 weeks of no hours = 464 Employer credits 464 +685 for 1,149 hours worked 1,149 hours divided by 52 weeks is 22.1 hours Result is PT
Managing Breaks in Service 2014 2015 Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 130 130 150 0 0 0 0 0 130 130 150 130 130 130 90 Weeks Out 4 8 13 17 21 25 30 Employee remains in same stability period upon return Employee worked 950 hours in 7 months (31 weeks) Employee s average hours worked for the 7 months worked is 30.6 30.6 * 21 weeks of no hours = 651 (capped at 501) Employer credits 501 + 950 for 1,451 hours worked 1,451 hours divided by 52 weeks is 27.9 hours Result is PT However, if January and February were FMLA leave for 5 weeks, then 5 weeks *30.6 hours or 150 hours are added back in for a total of 1,601 hours which changes the average to 30.7 Result is FT
Prickly Problems
Sticky Situations Policy terminates medical benefits after 26 weeks of absence from work due to illness or injury; disability is employer paid However, employment is not terminated until after 12 months of absence 1. Employee is in stability period for CY 2015 and is FT Disability leave begins October 1, 2014 Benefits end April 1 Employment ends and employee retirees September 30 Employee is FT for ACA purposed until retirement. COBRA is considered an offer of coverage. Cost is COBRA cost for that plan for ee only coverage
Sticky Situations 2. Employee is in stability period for CY 2015 and is FT Disability leave begins October 1, 2014 Benefits end April 1 Employment never terminates & employee returns to work June 1 Employee is FT for ACA purposed October thru Jun 1. COBRA is considered an offer of coverage. Cost is COBRA cost for that plan for ee only coverage 3. Employee is FT and employed for 6 months; not in stability Employee waived benefits at end of EWP USSERA leave begins 3/5/2015 Benefits terminate 4/30/2015 RTW 6/3/2015 with benefits resuming 7/1/2015 Employees is not full-time for March through June
Sticky Situations 2. Employee is in stability period for CY 2015 and is FT Worker s Comp leave begins November 1, 2014 Benefits end May 1 Employment never terminates & employee returns to work September 1 Worker s compensation is not protected leave and break in service is more than 26 weeks. This means that return to work on September 1 can be counted as a new period of employment. So employee can be coded as not an employee or as not full-time May through August and will enter a new penalty non-assessment period on September 1
Best Practices
Check Points Implement clear definitions and categorizations for employees as full-time or not full-time at the point of hire Capture status changes for employees who are new hires Systemically separate employees who are new hires from employees who are ongoing Define policies to quantify hours for projects where hours are not typically tracked Ensure that department heads are not taking employees on and off of benefits based solely on status changes
Check Points Implement a process to monitor hours for new employees who are hired with no expectation of or budget for offering benefits Implement a process to check on hours for ongoing employees at quarterly intervals in the standard measurement period Insist on cross-department accountability when an employee works for multiple departments, but is not expected to be full-time
Check Points Develop systems to track USERRA, FMLA and Jury Duty since these are outside of the 501 hour limit Develop as system to count 0 hours once the 501 hour limit is reached Implement a policy to terminate employment before an ACA liability occurs Have a clear written statement regarding how you are classifying adjunct professors; seek legal counsel
Thank you Elizabeth Patterson Managing Consultant Elizabeth.Patterson@NFP.com 267.482.8362