Employers will often assume that an offer of coverage is never required for short-term or temporary positions, but that is not always the case. Whether an employer is hiring summer interns, hiring seasonal employees to keep up with increased demand at a certain time of year, or hiring to temporarily fill a position while another employee takes a leave of absence, these employees are often expected to work full-time hours, and therefore the question arises – does the position require an offer of coverage?
To answer this question, three factors must be considered:
Is the employer an Applicable Large Employer (ALE)?
If the employer is an ALE, are they utilizing the lookback measurement method or the monthly measurement method?
If the employer is an ALE utilizing the lookback measurement method, are the temporary employees considered seasonal under §4980H?
Note: throughout this article, for conciseness, only the term “temporary employees” will be used, and this term does include interns.
Small Employers
For a small employer (i.e., has fewer than 50 full-time equivalents and thus is not an ALE), there is no obligation to make an offer of coverage. Small employers have broad flexibility to design benefit eligibility rules as desired, subject to any applicable state law. That being the case, small employers who do utilize temporary employees and would prefer not to offer coverage to them should ensure that their plan eligibility rules specifically exclude that category of employees. Otherwise, if a temporary employee otherwise meets plan eligibility requirements (e.g., working 30 or more hours per week), then they would be able to argue that they are entitled to an offer of coverage.
Applicable Large Employers
Applicable large employers (50 or more full-time equivalents) have to be a little more careful, at least in regard to an offer of coverage under the group medical plan. For benefits other than major medical, the employer could choose to handle eligibility rules as suggested above for small employers; however, the employer could risk penalties under §4980H if the temporary employees are considered full-time and are not offered medical coverage. Whether temporary employees are considered full-time may depend on whether the employer is using the monthly measurement method or the look-back measurement method to define full-time status. Keep in mind that the method chosen must generally be used for all employees, or at least all hourly employees (it is possible to differentiate methods between hourly and salaried employees).
If an ALE is using the lookback measurement method…
Those temporary employees that are considered “seasonal” under §4980H (definition below), then they may be subject to an initial measurement period of up to 12 months, which prevents them from being considered full-time. Either they will not average enough hours to be considered full-time over the entire initial measurement period, or they will terminate employment prior to the beginning of the associated stability period. But if these temporary employees do not meet the definition of seasonal, and they are expected to average full-time hours, then an offer of coverage would be required after the plan waiting period ends to avoid incurring potential penalties under §4980H.
A “seasonal employee,” for purposes of §4980H, is defined as an employee in a position for which the customary annual employment is 6 months or less. The reference to customary means that by the nature of the position, an employee in this position typically works for a period of 6 months or less, and that period should begin each calendar year in approximately the same part of the year (such as summer or winter). In other words, if an employer hires temporary employees throughout the year to help with projects as needed, or hires temporary employees who typically work beyond 6 months, then those employees cannot be classified as seasonal.
If an ALE is using the monthly measurement method…
It does not matter whether an employee meets the definition of seasonal – that rule only applies to employers utilizing the lookback measurement method. For employers utilizing the monthly measurement method, any employee (including temporary employees) is considered full-time if they achieve 130 or more hours of service per month, regardless of label.
If a temporary employee is expected to average full-time hours, even on a short-term basis, an offer of coverage would be required after the plan waiting period ends in order to avoid potential penalties under §4980H.
Penalty Risk for ALEs
An ALE can avoid the bigger penalty under §4980H(a) if they offer coverage to 95% or more of full-time employees each month. So if temporary employees are full-time (and not considered seasonal for employers using the lookback measurement method) and not offered coverage after the plan waiting period is satisfied, the employer could face a penalty under §4980H(a) if temporary employees make up 5% or more of the total full-time employee count during such months. A penalty under §4980H(a) is calculated monthly as follows for 2023 – (full-time employee count minus 30) x ($XXXX/12).
Even if the temporary employees make up less than 5%, the employer is still at risk for the penalty under §4980H(b) – at a cost of approximately $XXX/month per temporary employee – for each full-time temporary employee who is enrolled in subsidized coverage through a public Exchange and is not offered coverage during the months employed.
While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice or services. Readers should always seek professional advice before entering into any commitments.