Determining Employee Status

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ESR Safe Harbor Tests

To avoid potential ESR penalties, Applicable Large Employers can use a safe harbor method to determine if employees should be offered health insurance. A safe harbor method can confirm the status of existing employees and determine the status of new, seasonal, and variable hour employees. If an employer hires an employee and is not sure if the employee will work full-time, the employee will be considered a variable hour employee.

The safe harbor method consists of a look-back measurement period, administrative period, and subsequent stability period. Employers can select a look-back standard measurement period for ongoing employees of 3 to 12 months to calculate employee hours and determine if ongoing, newly hired, variable hour, or seasonal employees should be offered coverage beginning January 1, 2015. If any of these employees are determined not to be full-time, employers are not required to offer them health insurance for the next plan period.

Employers then have the option to follow this with an administrative period of up to 90 days to identify, notify, and enroll eligible full-time employees in health coverage.

Next is the stability period during which the enrolled full-time employees are provided coverage. At the end of this period, the employer can review employee hours to determine if the employees still meet the eligibility requirement of working full-time. For employees determined to be full-time, the stability period must be at least six months and no shorter than the look-back period of up to a year. If any of these employees are determined not to be full-time, employers are not required to offer them health insurance for the next plan period. For employees determined to be non-full-time, the stability period can’t be longer than the look-back measurement period.

In the following examples for ongoing employees, note that the stability period for the full-time employee is the required minimum of six months, whereas the stability period for the non-full-time employee matches the look-back period.

Full-Time Employee Example

Three-month look-back period:

August 15, 2014 – November 14, 2014

Six-week administrative period:

November 15, 2014 – December 31, 2014

Six-month stability period:

January 1, 2015 – June 30, 2015

Non-Full Time Employee Example

Three-month look-back period:

August 15, 2014 – November 14, 2014

Six-week administrative period:

November 15, 2014 – December 31, 2014

Three-month stability period:

January 1, 2015 – March 31, 2015

There are specific methods set up to determine whether newly hired employees should be considered full-time or non-full-time and if they must be offered health coverage. Refer to the IRS guidance and speak with your tax advisor for additional information.

Applicable Large Employers with 50-99 full-time employees may be eligible for a one-year delay in enforcement of the provisions until 2016. However, they must meet certain conditions outlined in the regulations to qualify for the transition relief and must certify in ESR reporting that they have met these conditions. If not, may still be liable for potential penalties if one of their non-covered employees receives a premium tax credit from a health insurance marketplace or if the coverage offered is not affordable or does not provide minimum value.