Employee Classifications under ACA
Categorizing employees into classifications like “full time” or “part time” may sound like a routine task, but the addition of Affordable Care Act (ACA) requirements has added some complexity to a seemingly simple concept. ACA redefined terms like “Full Time” and “Part Time” and even added some new vocabulary, such as “Variable Hour” which is a concept that is still somewhat misunderstood. We will spend some time today talking about employee classifications and why they are important to your business.
Classifications as Defined by ACA
Under ACA, a Full Time employee is rigidly defined as someone regularly working more than 30 hours per week, or 130 hours per month. An Applicable Large Employer, or ALE, is defined by ACA as a company with an average of 50 or more full time employees or Full Time Equivalents (FTEs). ALEs are required to provide an offer of affordable medical coverage to all full time employees no later than 90 days from their hire date.
ACA defines Part Time employees as anyone who regularly works less than 30 hours per week, or 130 hours per month. Employers are not required to provide an offer of medical coverage to these employees, but part time employees do factor into the FTE headcount when determining ALE status and the need to comply with various ACA requirements.
Variable Hour employees are those whose full or part time status is essentially unknown at the time of hire. This is an employee for whom the average number of hours has not yet been determined and as such under ACA there is a special category and process through which a newly designated “Variable Hour” employee could be tracked to determine eligibility. If an employee is classified as Variable Hour, he/she is not entitled to an offer of coverage until an “initial measurement period” has been satisfied to determine full or part time status. Once the measurement period is complete, average hours should be measured and a determination made if the employee is full or part time for benefit purposes.
This same process holds true even if an employee begins to ‘trend’ above the 30 hour per week mark. If they are truly a variable hour employee, they are not entitled to an offer of coverage until the initial measurement period has been fulfilled and the average number of weekly hours determined for the entire period. Having said that – if a choice is made to change an employee from variable hour to a full time classification due to a promotion or position change, then an offer of coverage would indeed be necessary.
Communicating Classifications to New Hires
It is important to understand each of these designations and to communicate them to an employee at the time of hire. A best practice is to include a class designation in your offer letter or other new hire documentation so the class is documented and understood by your new employee. This is especially important in the case of a variable hour employee. Imagine if your new employee doesn’t understand their benefit class is ‘variable hour’ and that they may need to wait as long as 12 months to obtain a benefit determination. If they see other employees receiving benefits right away, they may not understand and think they are being treated unfairly. It is always better to explain the classification and initial measurement period timeframe to the new employee so they understand the reasoning for it and have the right expectations.
Technology Simplifies ACA
While classifying employees may seem like an insignificant task, there are significant implications and it is important that you have a structure in place to manage this process and communicate it effectively.
The good news is there are technologies out there that can assist employers with keeping track of employee hours and ACA classifications. These systems can really simplify the task of managing measurement periods, determining eligibility for variable hour employees, making offers of coverage within the correct window of time, and even preparing your entire ACA filing each year.
Our experts understand ACA and work daily supporting busy HR and Benefits professionals in navigating these complexities. If you need help with ACA, call the Providence team at 904-719-8264 or email them at INFO@THEPTSTEAM.COM and let the experts handle this so you can focus on your business.