ACA Considerations for Manufacturers: Variable-Hour Employees

Despite this transition relief, there are various issues employers will need to consider when preparing for the mandate, including whether they are going to offer quality, affordable health insurance to their full-time employees or whether it will be necessary to explore an alternative, such as offering unaffordable coverage or perhaps a less robust plan.

Employers that ultimately decide to play rather than pay—meaning that they'll offer at least some form of health insurance—will need to determine which employees have worked an average of 30 hours or more per week and thus are full-time for purposes of the mandate. These employers will also want to determine when a new employee is "variable-hour," part-time or seasonal, as the rules permit employers to evaluate these employees' hours during their first 12 months of employment before offering coverage to anyone who averages at least 30 hours per week during that period.

Below are some considerations that manufacturers should consider when determining the full-time status of current and newly hired employees.

Current Employees

For existing employees, the determination is fairly straightforward: The employer measures hours worked over the preceding three-to-12-month period to determine which employees have worked an average of at least 30 hours per week. The periods run consecutively. For example, an employer can have four three-month measurement periods in a year, or one 12-month period.

Following the measurement period is an administrative period of up to 90 days, during which the employer has time to perform its calculations and provide enrollment materials to newly eligible employees. Following the administrative period is the stability period, which for full-time employees is at least six months but no shorter than the initial measurement period.

For various reasons, including ease of administration, an employer may wish to consider a 12-month cycle for its measurement and stability periods, with the stability period matching the plan year. For example, an employer with a calendar-year health plan and open enrollment in December might consider this strategy for 2015:

An employee who is offered coverage during a stability period is treated as full-time for the entire period as long as the employee remains employed—even if the employee's hours decrease during the stability period. Once the stability period ends, the employee will need to have worked an average of 30 hours over the preceding measurement period to continue coverage.

New Full-Time Employees

Often, the determination of whether a new employee is full-time will be clear. For example, a new employee who is reasonably expected at date of hire to work full-time (and is not seasonal) must be treated as full-time and offered coverage by the first day of the fourth full calendar month of employment in order for the employer to avoid potential penalties. (This will typically be within 90 days under the ACA's waiting period rules.)

New Variable-Hour Employees

New Variable-Hour Employees

An employee is variable-hour if, based on the facts and circumstances at the employee's start date, the employer cannot determine whether the employee is reasonably expected to work on average at least 30 hours per week during the initial measurement period because the employee's hours are variable or otherwise uncertain.

The initial measurement period is between three and 12 months (as selected by the employer), during which the employer may evaluate a variable-hour employee's hours to determine if the employee has worked at least 30 hours per week. The initial measurement period operates much like the standard measurement period, including having an "initial" stability period that starts on the first of the month following date of hire.

As part of the rule, the initial and standard stability periods must be the same length, which generally means that the initial and standard measurement periods will be the same length as well. Manufacturing employers should explore using a 12-month cycle for their measurement and stability periods, as an employee may be less likely to work an average of at least 30 hours per week over a 12-month period than a three-month period, for example.

Identifying Variable-Hour Employees

The determination of whether an employee is variable-hour is made at time of hire. Once a variable-hour employee has worked for the employer for at least one full standard measurement period, the employee is evaluated along with all other hourly employees at the end of that standard measurement period.

For example, using the measurement period from the table above, a variable-hour employee hired Sept. 15, 2014, would have his or her own initial measurement period that runs from Oct. 1, 2014, to Sept. 30, 2015, with an initial stability period running from Nov. 1, 2015, to Oct. 31, 2016. At the same time, the employee would have started the standard measurement period that runs from Dec. 1, 2014, to November 30, 2015, for the 2016 calendar year stability period. The overlap between the initial and standard stability periods ensures that there is no gap in coverage for employees who measure full-time during their initial and standard measurement periods.

Factors to consider when determining whether an employee is variable-hour include whether the employee is replacing a full-time employee or a variable-hour employee; the extent to which the hours of similar employees have actually varied above and below an average of 30 hours historically; and whether the job was communicated to the new employee as full-time, part-time or variable-hour (although the regulations caution that no single factor is determinative).

Notably, however, the employer may not take into account the likelihood that the employee may terminate employment before the end of the initial measurement period. In other words, there is no blanket exemption for employees who work full-time on a short-term basis. If not seasonal, these employees would need to be offered coverage by the first day of the fourth full calendar month of employment for the employer to avoid potential penalties.

Stacy Barrow is a Boston-based lawyer in management-side law firm Proskauer's Labor & Employment Law Department and a member of Proskauer's Employee Benefits, Executive Compensation and ERISA Litigation Practice Center and Proskauer's Health Care Reform Task Force.