Different Strokes for Different Folks: The Feasibility of Implementing Different Benefits Plans for Different Categories of Employees (Part II)
In the growth of the gig economy, many employers are increasing the number of categories of their employees and associates. One challenge of the gig economy is determining when a worker qualifies as a full-time employee for purposes of providing medical coverage mandated by the Affordable Care Act. This post examines how employers can determine whether intermittent workers qualify as full-time employees.
Note: The Affordable Care Act remains under legal challenge. Seyfarth has written about that lawsuit here.
The Affordable Care Act (“ACA”) requires that “large employers” (those employing on average at least 50 full-time employees) to provide medical coverage to full-time employees. IRC § 4980H. In the context of the gig economy, determining whether a worker qualifies as “full-time” can be complicated.
If, at the time of hire, an employer cannot reasonably determine whether a worker will be “full-time,” the employer may exclude such workers from medical coverage for up to 12 months. Treasury Regulations permit employers to use the “look-back measurement method” to determine which variable hour employees serve in full-time capacities for purposes of providing medical coverage. 26 CFR § 54.4980H-3(d).
Under this method, employers may use an initial measurement period of at least 3 months, but not more than 12 consecutive months, to determine whether workers worked on average at least 30 hours per week, or 130 hours per month, the threshold for “full-time” status under the ACA. IRC § 4980H(c)(4); 26 CFR § 54.4980H-1(a)(21)(ii).
Following the initial measurement period, the employer evaluates the new hire’s hours. If, over the initial measurement period, the worker has worked sufficient hours to qualify as “full-time,” then the employer must offer medical coverage on a going-forward basis. The duration of the coverage (known as the “stability period”) must be the greater of six months or the initial measurement period. § 54.4980H-3(d)(3)(iii).
The growth of contingent workforces can create challenges for compliance with the ACA. However, the look-back measurement method provides a safe harbor for large employers to determine whether new workers -- whose working hour are not reasonably knowable at the time of hire -- must be provided medical coverage. Stay tuned to this blog for more discussion of structuring benefit plans in the gig economy.