In Notice 2012-58, the Internal Revenue Service (the “IRS”) has provided guidance on how to determine whether an individual is a full-time employee of an employer, for purposes of the “Shared Employer Responsibility Rules” (sometimes called the “Play or Pay Penalty)”, under section 4980H of the Internal Revenue Code (the “Code”), added by the Health Care Reform Act.
Section 4980H applies to “applicable large employers” , which generally are employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year. Generally, section 4980H provides that, beginning in 2014, an applicable large employer is subject to an assessable payment if either: (1) the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under its health care plan, and any full-time employee is certified to receive a premium tax credit or cost-sharing reduction under the Code, or (2) the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential health care coverage, but the coverage is nevertheless not affordable or not adequate and one or more full-time employees is certified to receive a premium tax credit or cost-sharing reduction under the Code. In the case of (1), the assessable payment is equal to $2,000 times the excess of the number of full-time employees over 30. In the case of (2), the assessable payment is the lesser of the payment under (1) or $3,000 times the number of full-time employees receiving the premium tax credit or cost-sharing reduction.
Section 4980H(c)(4) provides that a “full-time employee” is an employee who is employed on average at least 30 hours of service per week. Thus, section 4980H requires an employer to identify, and determine the number of, its “full-time employees”, to ascertain whether it is subject to section 4980H and possibly the assessable payment. The identification process can be difficult when some employees work a variable number of hours each week or there are seasonal employees.
The Notice describes safe harbor methods that employers may (but are not required) to use to identify its full-time employees. In so doing, the Notice:
–expands a safe harbor method previously provided to allow employers the option of using a look-back measurement period of up to 12 months to determine whether new variable hour employees or seasonal employees (as defined in the Notice) are full-time employees, without being subject to an assessable payment under section 4980H for this period with respect to those employees;
–provides employers with the option of using specified administrative periods (in conjunction with specified measurement periods) for ongoing employees and certain newly hired employees;
–facilitates a transition for new employees from the determination method the employer
chooses to use for them to the determination method the employer chooses to use for ongoing employees; and
–allows employers to rely, at least through the end of 2014, on the guidance contained in this Notice and on certain approaches described in prior IRS notices.