BakerHostetler's Benefits Broadcast

Alerts / August 12, 2013

On July 2, the U.S. Treasury Department announced that the enforcement of the Employer Mandate taxes and reporting would be delayed until January 1, 2015 (see the BakerHostetler Executive Alert posted on July 5, 2013). While the enforcement of the Employer Mandate has been delayed for one year, there are still many issues that employers need to address.

In this special edition of the Benefits Broadcast, we share with you some insights into what employers should be considering and doing now, despite the delay:

  • In "Too Soon for Party Hats," John McGowan provides several observations and some big-picture issues to consider as employers and employees begin to face an onslaught of ACA-related marketing efforts in the next several months.
  • In "Now for Everything Else," Jennifer Mills drills down into the immediate requirements employers are facing as we head into 2014 and think ahead to 2015 by providing a "top-10" list of issues employers should be considering.
  • In "Stand and Be Counted," Georgeann Peters describes the key considerations (and her own "top-10" list of issues) in identifying employees and other workers who must be offered affordable health benefit coverage under the Employer Mandate. Despite the delay in enforcement of the Employer Mandate, employers need to implement hours counting methodologies this fall.

We hope that you find this special edition of the Benefits Broadcast helpful. In keeping with our "in the meantime theme," if there is a subject you would like to see covered, let us know. Contact any member of BakerHostetler's Employee Benefits Group with questions or comments.


Like many, I was initially relieved when I read the July 2, 2013, announcement by the U.S. Treasury Department, effectively providing "large" employers with up to an additional year (to 2015) to comply with the ACA's Employer Mandate requirement before they must face the threat of tax penalties. Many employers had expressed substantial concern, and some had even expressed dismay, over their ability to satisfy those new rules by the original 2014 effective date.

I then recalled a conversation I had with, ironically, the owner of a Florida-based third party administrator (TPA) back in 1992. Our conversation took place three days after Hurricane Andrew (the now-legendary Category 5 storm) had devastated the southern part of Florida, all but wiping out the city of Homestead. The owner's business had been spared, but he faced a different problem: as many as 35-40 percent of his employees were either homeless or missing. To his credit, the owner was calling about how best to provide shelter, funding and relief for those employees left homeless by the storm and how to provide for dependents of those who could not be found. But, he also called because he had a business problem: the TPA could not operate without its staff, and he expected the TPA would not be able to satisfy its many contractual commitments and statutory obligations.

That is similar to a key problem all employers face today in the context of what is commonly called Health Care Reform: they won't have to face the ACA music in 2014, but their employees and family members will. So, how much does the enforcement delay really change things? Surprisingly, it may turn out that things may just be different. Employing organizations are likely to face different -- and more subtle -- challenges because their employees and non-employee workers will still be motivated (some, highly motivated) to seek out and acquire health insurance coverage in 2014. And that fun starts in only eight weeks when the new health insurance exchanges (now called Health Insurance Marketplaces, or just Marketplaces) begin taking applications from those individuals who want or need to buy individual coverage for 2014.

Employee Problems Beget Employer Problems

In the article, "Now for Everything Else," my partner, Jenny Mills, points out that many of the new ACA requirements employers are scheduled to face on January 1, 2014, have not been postponed despite the announced enforcement delay of the Employer Mandate. Her article should be required reading because all employers will soon have a shared experience: beginning October 1, 2013, tens of millions of individuals -- many of them someone's employee -- will be prompted and prodded (perhaps, even shamed and scared) into seeking individual health insurance coverage for themselves and their families through one of the new Marketplaces. Indeed, to quote a phrase, it is much too soon to "get out the party hats."

The focal point of my article draws inspiration from my "Hurricane Andrew" story: it looks (briefly) at how the oncoming ACA changes will directly affect individual employees and non-employee workers starting October 1, 2013, and how those changes will indirectly affect those for whom they work. Why? Because the ACA in 2014 will substantially alter the health insurance landscape just as much as Hurricane Andrew altered the Southern Florida landscape in 1992. Because all other stakeholders must deal directly with the ACA in 2014, no organization that depends on employees and non-employee workers to function will have the luxury of simply taking a year off and revisiting the ACA sometime next summer when it comes time to figure out what to do for 2015.

Things to Consider

Accordingly, and in no particular order, I offer just a handful of ACA issues and events which individuals will have to address as soon as October 2013 and which seem likely to create issues (and problems) for the organizations that employ those individuals or otherwise use their personal services:

  • Whether the individual knows who his or her "employer" is, when applying for individual policy coverage through a Marketplace. For "traditional" employees, this one is easy: they simply identify their employer and provide information to the marketplace about whether that employer provides (or at least offers) them health insurance coverage on an affordable basis. But that won't help all those other individuals who either don't know if they have an "employer" (e.g., because they technically are partners, are self-employed, etc.), or don't know who their "employer" is because they are paid by one company but provide services to another (e.g., employees involved with a leasing company, "PEO," staffing agency, etc.). For many individuals, it will be a trick question and many of them will get it wrong.

The reality here is that the ACA defines "employee" using at least three different standards:

  1. the federal income tax laws, which are being used to define an "employee" for the Employer Mandate and other penalty tax purposes;
  2. the federal wage-and-hour laws (known as the Fair Labor Standards Act, or FLSA), which are being used to define an "employee" for the Marketplace notice, employer retaliation and automatic enrollment purposes;[1] and
  3. the Public Health Service Act (PHSA) (and, indirectly, the Employee Retirement Income Security Act (ERISA) for private sector employers and state law for public sector employers), which is using a hybrid definition to identify who qualifies as an "employee" for Marketplace and coverage purposes. (Notably, for private sector employers, the definition of "employee" is determined by reference to who can qualify as a "participant" for ERISA purposes. Thus, a partner in a partnership covered by an ERISA-regulated group health plan that also covers common law employees of the partnership is considered a "participant" in that plan who is receiving employer-provided coverage, even though the partner would not count as an "employee" for purposes of the Employer Mandate and several other ACA requirements.)

While an oversimplification, the above standards can be synthesized into the following two principles:

  1. Any individual who has health insurance coverage and gets that coverage from an organization that has common law employees likely is getting "employer-provided" coverage, even if that individual is not a common law employee. (There are some exceptions, but they are few in number.)
  2. An individual who merely is eligible for coverage, or who, in any event, is not enrolled in such coverage, must look at his or her status under the PHSA (and, as relevant, under ERISA or state law) to know whether he or she even has an "employer," much less whether the coverage being offered at work constitutes "employer-provided" coverage.
  • Delayed ACA compliance by some employers and aggressive ACA compliance by other employers will create enrollment and coverage problems for many of their employees. Due to the delayed enforcement of the Employer Mandate, some employers that would have offered affordable coverage to all their full-time employees (and their dependents) are likely to just postpone things until 2015. Other employers may press forward with their current strategy, which often consists of offering affordable coverage to full-time employees -- but no one else -- since the proposed Employer Mandate regulations generally permit employers to delay until 2015 the obligation to offer coverage to full-time employees' dependents. Many restaurants, hotels, salons, grocery and convenience store operators and general retailers fall into this category. In contrast, virtually all employees will face "individual mandate" penalties if they fail to obtain coverage, starting January 1, 2014. Of equal importance, the "individual mandate" tax penalty applies to the entire family starting in 2014: an individual with dependent children faces a penalty tax by failing to obtain coverage for those children, even if the individual gets coverage for himself. (See the article, "Stand Up and Be Counted," in which my partner, Georgeann Peters, highlights the key rules for identifying full-time employees under the Employer Mandate.)
    An example illustrates the problems that can and will arise, particularly in 2014. If an employer offers its full-time employees affordable, self-only coverage, but does not offer dependent coverage, the employer creates a dilemma for that employee. The employee who accepts the coverage for himself must choose between incurring a tax penalty for failing to cover his children and buying coverage for them through the Marketplace on a completely unsubsidized basis. Conversely, the employee who turns down such an affordable coverage offer may be able to purchase taxpayer-subsidized coverage for his children -- just not for himself -- which could substantially lessen the tax penalties and the employee's overall economic burden.
    An employee offered affordable coverage in 2014 faces an even stranger choice if his dependents are eligible for employer-provided coverage (just at a price the employee cannot afford). The only way an employee can get taxpayer-subsidized coverage for those dependents would be to, in effect, disavow them by no longer claiming them as dependents on the employee's income tax return. An employee with a chronically ill or disabled child, confronted with these sorts of Hobson's choices, is not likely to respond favorably to it.
  • Some 2014 transition rules are likely to dissipate by January 1, 2015. Several ACA regulations contain transition rules that are designed to provide employers (and related third parties, like Taft-Hartley funds) additional time to put in place all the personnel, hours-tracking and information reporting systems needed to comply with the Employer Mandate. Specifically, the proposed Employer Mandate tax rules provide relief for fiscal year plans, employee staffing companies and employers that contribute to Taft-Hartley funds, to name a few. The one-year enforcement delay renders much of this transitional relief unnecessary -- but not all. Employers need to go back and revise their thinking and re-set their deadlines.
  • The Marketplace open enrollment period this year will last six months, adding up to six months of confusion. Many employers do not realize that the Marketplaces will have an extended sign-up period this coming year -- from October 1, 2013, through March 31, 2014 -- and individuals will be able to enroll at any time during that period without needing an excuse (e.g., loss of eligibility, change in family status, etc.). Particularly for those employers that wait until 2015 to make major changes in coverage, this expanded enrollment period could set off a wave of comparison shopping as individuals consider all their costs and coverage options, both for themselves as well as for their spouses and dependents. For employers with calendar year plans, the first Marketplace open enrollment period is likely to open weeks before -- and close several months after -- the enrollment period for the employer's own plan. During this period, it will be increasingly important for employers to avoid miscommunications and to avoid being drawn into providing tax, coverage or other type(s) of advice about the coverage choices being made available to employees. For example, an employer that misinforms an employee as to the coverage the employer will be offering, or the employee's eligibility for coverage, could cost the employee thousands of dollars in foregone taxpayer subsidies, mistakenly-provided taxpayer subsidies (which could be recouped) or lost employer subsidies. The entire process could be a litigation-breeder for employers who aren't careful.
  • The Marketplace open enrollment period this year also could be a source of mischief. Many employers also don't realize that if an employed individual applies for taxpayer-subsidized health insurance through a Marketplace, the individual will be required to declare that his or her employer is not offering affordable coverage that provides minimum value. (NOTE: An employer's offer of coverage has to be both affordable and provide minimum value to render the individual to whom the coverage is offered ineligible for taxpayer-subsidized coverage.) In those instances where the employed individual's declaration cannot be verified through existing database information (including, for example, the W-2 coverage information many employers were required to provide to the IRS and to their employees starting in 2012), Marketplace administrators will be required to contact the employer to see if the coverage declaration can be verified or will be challenged. Some employers may be peppered with Marketplace requests from several different Marketplaces (depending on where their employees reside and who seeks such coverage). Employers will need to watch how they respond and react to such requests. An employer that responds inaccurately could be accused of negligently depriving the employee of the opportunity for tax subsidies worth thousands of dollars. An employer that discharges or disciplines an employee shortly after being contacted by a Marketplace administrator in respect of that employee could leave itself open to a charge of unlawful retaliation.
  • Employees eligible for coverage under a fiscal year health plan will have more opportunities to shop and switch coverage, which will present special challenges for the employers that maintain such plans and for the Marketplaces that have to deal with such individuals. Employees offered coverage by an employer with a contributory calendar year health plan will face new, more complicated choices this year: whether to enroll in the employer-provided coverage this autumn or turn down that coverage offer and instead purchase individual coverage (if at all) through one of the new Marketplaces at approximately the same time. Employees of employers with fiscal year plans, though, will find themselves in an enviable position: they will have more flexibility because they will get two open enrollment periods each year: the one the Marketplace provides and the one the employer provides. Neither the employer nor the marketplace will be able to deny coverage or impose any pre-existing condition limitation rule starting January 1, 2014. Any individual with the ability to enroll at two separate times during the year, without precondition and without having to satisfy any sort of "special enrollment" requirements, is in a much better position to simply wait to purchase coverage until the individual needs it, particularly since the individual mandate tax penalty contains an exemption for coverage lapses of up to three consecutive months.

No [Employer] Is an Island

The above items constitute just a few of the complications likely to surface in the next 12 to 18 months as individuals and those that employ them or utilize their services come to grips with the new Marketplaces and all the new rules that they will bring, including the promise of taxpayer subsidies for millions of individuals and expanded access to a variety of different types of coverage (including access to widely divergent provider networks and provider organizations).

While so-called "large" employers certainly have been provided additional time due to the Employer Mandate delay to get their plans and systems in order, it certainly does not mean they can sit on the sidelines. All of their employees, indeed, all of their workers, whether or not they acknowledge them as employees for one purpose or another, will be facing a Brave New World of coverage decisions starting October 1. At least some of them will be profoundly affected by all of those new choices. Anything that affects all of an employer's employees inevitably will affect the employer. Why? Simple: a hurricane by any other name remains a hurricane.

Authorship Credit: John J. McGowan, Jr.

[1] Consider just the new requirement that organizations must notify their "employees" about the new Marketplaces. The regulatory agencies have made plain that only an organization that is subject to the Fair Labor Standards Act (FLSA) is required to provide the notice, and that obligation is merely to notify those employees of the employer who are subject to the FLSA. The FLSA's definition of "employee" is different from the definition of "employee" that the federal tax law uses. For example, a bona fide partner in a partnership is not considered an "employee" for FLSA purposes; however, many workers who qualify as independent contractors for federal tax purposes satisfy the definition of an "employee" for FLSA purposes because they are economically dependent on the business for which they perform their personal services. And some worker categories, such as limited liability company (LLC) employees who also own an equity interest in the LLC, are intentionally ambiguous: they clearly are employees for FLSA purposes but are considered partners or self-employed individuals for federal income tax purposes (if the LLC elects to be treated as a partnership for federal income tax purposes).


For the past several months (and, in many cases, years), most large employers have been preparing for the consequences of offering (or not offering) their workforce health coverage and complying with the complexities introduced by the Employer Mandate under the ACA. Now that the enforcement of the Employer Mandate taxes and reporting has been delayed until 2015, employers can breathe a little easier. However, there are several other issues apart from the Employer Mandate that should be on the radar for most employers as we move toward 2014 and beyond. This is especially true with respect to the areas of the ACA that were not changed by the delay of the Employer Mandate provisions.

Below is a "top-10" list of issues (both ACA and non-ACA) that employers should be considering now in relation to their health care plans. The ranking is generally according to deadlines or timeliness, with the most immediate and timely topics listed last. Although the list of issues and the order of their importance will vary from employer to employer, the following items will apply to most:

10. Review and revise, as necessary, all plan documents related to health care plans and arrangements. The ACA has required many changes to plan operations over the past few years and will continue to require changes. As employers gear up for the enforcement of the Employer Mandate in 2015, they should carefully review all plan documents to verify that all necessary changes under the ACA have been made and review eligibility provisions in light of the delay of the Employer Mandate. Employers may have already had some plan design changes in play to prepare for the Employer Mandate and now should consider what to implement in 2014 and what to delay to 2015.

9. Continue to prepare for the Employer Mandate. Although employers do not have to worry about enforcement of the Employer Mandate tax penalties and reporting requirements in 2014, employers should continue to prepare for the Employer Mandate by evaluating their workforce -- both the classification of employees and the counting of hours. The delay provides an opportunity for employers to consider 2014 to be a test year regarding who should be offered coverage and address potential issues. See the article, "Stand and Be Counted," by Georgeann Peters, for key considerations in determining employees who must be offered affordable medical care by 2015 according to the Employer Mandate.

8. Review cost-sharing for 2014 coverage in light of the delay of the Employer Mandate. Although the affordability requirement will not be enforced in 2014, certain new limits on cost-sharing provisions are still effective in 2014, such as the application of co-payments to out-of-pocket maximums. In addition, many employers had already begun to budget for new employee contribution cost-sharing provisions in 2014 to address affordability issues. Given the delay in the enforcement of the Employer Mandate to 2015, employers will want to take the time to review their cost-sharing structures and evaluate whether to implement or delay any shifts in employee contribution cost-sharing.

7. Review and revise wellness programs and incentives based on the ACA guidance. Earlier in 2013, new wellness program regulations were published that increase the amount of dollar incentives that employers can provide to employees to encourage healthier lifestyles through the use of standards-based program incentives. Through these programs employers can incentivize employees to meet certain health standards through financial incentives of up to 30 percent of the total cost of the health care coverage for general wellness programs (and up to 50 percent of the cost of health care coverage for wellness programs designed to prevent or reduce tobacco use). As with previous guidance, alternative standards will need to be available in certain situations. In addition, compliance with the ACA's guidance on wellness programs does not guarantee compliance with the provisions of the Americans with Disabilities Act or the EEOC's concerns about wellness program penalties and incentives, so employers need to take care in developing their wellness programs.

6. Prepare for the rest of the ACA. Although the Employer Mandate has been delayed, the rest of the provisions of the ACA are scheduled to move forward. Requirements such as the removal of pre-existing conditions, the Individual Mandate, the Health Insurance Marketplaces, new employee notice requirements and communications, plan fees and many other ACA requirements will need to be implemented as originally scheduled.

5. Gear up for ACA notices. Significant ACA requirements involve communicating information regarding the employer's health plan to employees. In 2012, the Summary of Benefits and Coverages (the SBC) was introduced. SBCs must be distributed again in the Fall 2013. Also in 2013, employers will be required to send a new notice to members of their workforce regarding the "New Health Insurance Marketplace Coverage Options and Your Options." Through this Marketplace Notice, employers will educate members of the workforce about the Health Insurance Marketplaces (Marketplaces) that will be open for enrollment for the first time from October 1, 2013, through March 31, 2014. All employers (regardless of size) must produce and distribute this Notice.

4. Prepare for an earlier open enrollment as a result of additional notice requirements. In the interest of efficiency, many employers try to do one large mailing each fall that includes required employee notices and open enrollment materials for the enrollment in the following year. With the October 1, 2013, deadline for the distribution of the Marketplace Notice, employers should consider moving open enrollment to an earlier date to accommodate the Marketplace Notice deadline. Then, all notices, such as the SBCs, CHIPRA, WHCRA, Wellness Programs "Alternative Standards" and Medicare Part D (in accordance with special rules for Medicare Part D notices) could be distributed at one time with the open enrollment materials.

3. Develop strategies and educate human resources personnel regarding the Individual Mandate and the Health Insurance Marketplaces. The enforcement of the Employer Mandate was delayed to 2015, but the obligation of employees to have individual coverage under the "Individual Mandate" begins January 1, 2014, and the opportunity for individuals to purchase coverage on the Health Insurance Marketplaces begins on October 1, 2013. Employers will not be isolated from the Marketplaces. As noted above in the fourth and fifth items, employers will be required to provide notices to employees regarding the Marketplaces and will be required to respond to Marketplace requests to confirm employee data and coverage. As observed in the article, "Too Soon for Party Hats," John McGowan highlights the fact that employers -- especially human resource and benefits personnel -- will likely be besieged with employee questions about Marketplaces. To prevent confusion, "mischief" and the accompanying employee relations challenges described in that article, employers need to understand, on one hand, their proper duties and responsibilities and, on the other hand, the limits on what they are required to do. For this reason, it is critical that management develop specific strategies and educate themselves and their human resources personnel to address the potential issues, scenarios and questions that are likely to occur beginning October 1, 2013.

2. HIPAA/HITECH -- Updates required for the Final Rule. ACA is not all there is on the short-term horizon. In January 2013, the final HIPAA/HITECH regulations were issued by the HHS. As a result, all employers should be reviewing, and, as necessary, updating their HIPAA policies and procedures for their covered entity health plan, including Privacy Notices, and evaluating business associate relationships and underlying agreements. The deadline for compliance is generally September 23, 2013, with the exception of certain business associate agreements that were compliant on January 25, 2013, which have until September 2014 to be amended.

1. Changes necessitated by the Supreme Court's ruling related to the Defense of Marriage Act (DOMA). At the time of publication of this newsletter, government guidance for employee benefit plans had not been issued regarding the U.S. Supreme Court's decision in United States v. Windsor, 570 U.S. __, 133 S. Ct. 2675 (2013), as reported in the BakerHostetler Executive Alert posted on June 27, 2013. The decision greatly impacted the provision of employee benefits to the same-sex spouses of employees by eliminating certain federal restrictions under DOMA. It is anticipated that guidance will be issued soon. In any event, at least two lower federal courts have issued opinions since Windsor that appear to have expanded the scope of the Supreme Court's decision. See, for example the decision from the Eastern District of Pennsylvania, Cozen O'Connor, P.C., v. Tobits. All employers should be evaluating their health and welfare benefit plans in anticipation of the expected government guidance and continued development of the law by the courts. Some of the changes related to the provision of tax-advantaged health benefits are retroactive, but most will be effective going forward. How far back the changes must go, and whether or to what extent employers must implement changes before January 1, 2014, is not yet known. BakerHostetler will be issuing future alerts on this topic as government guidance and as further significant court rulings are issued.

As Fall 2013 is quickly approaching, absent the shadow of the Employer Mandate, all employers should use this opportunity to carefully consider the above items as part of their strategic planning for 2014 and 2015, as well as general ongoing compliance for their health plans.

Authorship Credit: Jennifer A. Mills


The article "Start Counting," published in the June 3, 2013, edition of the Benefits Broadcast discussed how employers must "count" themselves into compliance with the ACA, and how the number of employees affects whether an employer is subject to the ACA Employer Mandate, is eligible to purchase coverage in the Marketplace (formerly known as "Exchanges") or is subject to various fees. Another aspect of counting your way into compliance involves determining who is a full-time employee that must be offered affordable health coverage by an employer that is subject to the Employer Mandate.

As explained in the introduction to this special edition of the Benefits Broadcast, the enforcement of the Employer Mandate has been delayed until 2015. Despite that delay employers need to understand how to determine who is a full-time employee soon in order to be ready to comply with the Employer Mandate in 2015.

Under ACA, a full-time employee is defined as an individual who is employed for an average of 30 hours per week or 130 hours per month. For this purpose, all hours for which pay is received count; thus, hours include paid time off (PTO). If an employee is expected to work full-time (30 hours per week or more), counting of hours is necessary. That type of employee is presumed to be full-time and must be offered affordable coverage within 90 days of employment.

Identifying Variable Hour Employees

Part-time, seasonal and other "variable" hour employees for whom it is uncertain whether they will average 30 hours per week must have their actual hours counted. This means that employers must either maintain a record of the hours such employees actually work or for which they are compensated, or they will be required to use an equivalency based on crediting eight hours for each day worked or 40 hours for each week. Different equivalencies can be used for different classifications of employees, as long as it is consistent and reasonable to do so. One of the available equivalencies cannot be used, however, if it would substantially understate the actual hours worked, such as where an employee regularly works a ten-hour shift. Using an eight-hour per day equivalency would not be reasonable in that case.

Designating the Measurement Period

For purposes of counting hours of service, each employer can designate a "measurement period" during which it will look back and determine the hours worked by variable hour employees. The measurement period has to be a minimum of three months and a maximum of 12 months long. In general, it will be preferable to select a 12-month look-back measurement period as hours worked will be averaged over that length of time. If a shorter measurement period is selected and happens to coincide with an unusually busy work period, it is more likely that many variable-hour employees will exceed the 30 hours threshold and have to be offered coverage. In addition, a longer measurement period delays for a longer period of time the date by which coverage must be offered, if the employee does average 30 hours per week.

The Administrative and Stability Periods

After the end of the measurement period, the employer may use an "administrative period" of up to 90 days during which all employees who meet the hours requirement are then offered enrollment in a group health plan. Once enrolled, the employee must be offered the coverage for a fixed "stability period" that is not less than six months long and also no shorter than the measurement period. Thus, if a 12-month measurement period is used, then, once eligible, a variable hour employee must be offered coverage for at least the next 12 months.

The measurement, administrative and stability periods should be established on a set basis for ongoing employees so that the employer can determine who must be offered coverage in time for the annual open enrollment period. For example, if the group health plan operates on the calendar year, open enrollment will typically start around November 1. If the employer establishes a measurement period of 12 months beginning on October 15, full-time employees can be identified in time for open enrollment and can be processed through an administrative period of less than 90 days running from October 16 through December 31. Anyone who is eligible will then be enrolled in the group health plan for the entire next plan year (January 1 through December 31), even if the employee's hours drop below 30 during that period of time.

Each variable-hour employee will be subject to re-evaluation of his or her average hours of service on an ongoing basis over the same 12-month measurement period, which will then determine whether the individual is eligible to participate in open enrollment for the next calendar year. Note that you cannot drop employees from coverage in October if you determine they are not meeting the requirements for the current measurement period. Their removal from or enrollment in the group health plan must always occur on January 1 (in this example), the beginning of the 12-month period of coverage.

New Hires

New hires are handled a little differently. Each new employee who is hired on a full-time basis must be enrolled within 90 days. If the individual is a variable-hour employee and it is uncertain if he or she will average 30 hours, then a separate measurement period begins no later than the first of the month after date of hire. The measurement period can again last up to a year, but the measurement period and administrative period together cannot extend beyond the end of the first full month after the anniversary of the employee's date of hire.

So, for example, if the employee is hired on March 15, 2014, his measurement period could run from April 1, 2014, through March 31, 2015, assuming a 12-month measurement period. The administrative period is then only one month long (April 1 through April 30, 2015) and the employee must be offered enrollment in the health plan by May 1, 2015, if he averaged 30 hours of service per week during the measurement period.

Once enrolled, a new hire's coverage continues for at least a year, or, in the above example, through April 30, 2016. The employee is also tested for the hours requirement on the next overlapping standard measurement period for ongoing employees.

When these rules were scheduled to take effect in 2014, the regulations permitted the use of a shortened, six-month transition measurement period beginning no later than July 1, 2013, and ending no more than 90 days before the 2014 plan year. Many employers may not have been prepared to perform this hours counting exercise this year. To that end, the enforcement delay provides some breathing room, but not much.

Transition Period Likely Unavailable for 2015

There is nothing to suggest that a similar transition period will be applicable for compliance in 2015. As a result, if your plan, like most, operates on the calendar year, you probably should get ready to start counting hours of service beginning sometime in October 2013. That way, as described above, you will have the data for a full 12-month measurement period that ends shortly before open enrollment for the 2015 plan year when the Employer Mandate will become enforceable.

Our "Top-10" List

The delay in the enforcement of the Employer Mandate does not translate into a delay in implementing systems and procedures for counting hours and identifying full-time employees for the Employer Mandate in 2015. There are many details to absorb, but perhaps the following are the "top-10" items employers need to know about determining who is a full-time employee eligible for affordable health coverage:

10. The rules for determining whether an employer has 50 full-time equivalent employees and thus is subject to ACA are not the same as the rules used to determine whether any individual employee averaged 30 or more hours of service per week and has to be offered affordable coverage. Employers cannot exclude certain seasonal workers and do have to count and average their hours over a standard measurement period.

9. If an employee is hired on a full-time basis, no hours counting is needed; employees expected to work full-time (as defined by ACA) have to be offered coverage within 90 days.

8. To determine if a variable hour employee is "full-time," an employer must either count actual hours of service or use an equivalency based on eight hours per day or 40 hours per week worked.

7. Hours of service generally equal all hours for which an employee is paid; paid time off therefore counts as time worked.

6. All employers under common control are treated as a single employer; an employee who moves from one to the other must have his or her hours aggregated.

5. Different methods of counting hours can be used for different classifications of employees, provided the basis for using a different method is reasonable.

4. An employer can also establish different measurement and stability periods for groups of employees on the basis of being collectively bargained or not, salaried versus hourly or being located in different states. There are no other special rules or exemptions for collectively bargained employees.

3. If an employee terminates and is rehired within the same measurement period, you can treat him as a "new" employee only if the break in service was at least 26 weeks (six months) long.

2. If an employee's status changes in the middle of a stability period, it is largely ignored. So, a full-time employee becoming part-time does not lose coverage. However, a part-time employee moving to a full-time position does have to be enrolled no later than the first day of the fourth month after the change.

1. And, finally, the number one thing employers need to know as they approach the time for complying with these hour counting requirements is that current legislative proposals to increase the hours necessary to be full-time from 30 per week to 40 per week are not likely to be successful, especially given the deadlock in Congress.

Accordingly, the time to start counting is now!

Authorship Credit: Georgeann G. Peters

For more information and help in implementing the requirements of the ACA and other federal requirements related to the provision of health care benefits, please contact John J. McGowan, Jr. at or 216.861.7475; Jennifer A. Mills at or 216.861.7874; Georgeann G. Peters at or 614.462.4769; or any member of BakerHostetler's Employee Benefits Group.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2013 Baker & Hostetler LLP