Variable Hour and Seasonal Employees

1. Variable Hour and Seasonal Employees Southwest Michigan Association of Health Underwriters April 25, 2013 Scott Lyon Senior Vice President Small Business Association of Michigan

2. Definitions • Full-time Employee • Ongoing Employee • Variable Hour Employees • Seasonal Employees • Initial Measurement Period • Measurement Period • Administrative Period • Stability Period

3. Reporting – Section 6056 IRS reporting will begin in 2015 for health insurance coverage provided on or after January 1, 2014.  Information to be reported includes: • Your company's name and employer identification number • A certification as to whether your company offers its full-time employee* (and their dependents) the opportunity to enroll in a health plan that meets the definition of a minimum value plan. • If your company certifies that it does offers its employees and dependents the opportunity to enroll, then you must also report: • The length of your waiting period* (cannot exceed 90 calendar days) • The months during the calendar year for which coverage was available • The monthly premium* for the lowest cost option available by category of employee • Your (employer's) share of the total allowed cost of benefits provided under the plan • The number of full-time equivalent employee (FTE)* for each month during the calendar year • The name, address, and tax identification number of each full-time employee during the year (by month) when the employee (and dependents) were covered under your group health plan • Such other information the Secretary may require

4. Full-Time Employee A full-time employee is generally defined as any employee who works an average at least 30 hours of service per week or 130 hours in a month.

5. Ongoing Employee An ongoing employee is an employee who has been employed by the employer for at least one complete standard measurement period. Under the safe harbor method for ongoing employees, an employer determines each ongoing employee’s full-time status by looking back at the standard measurement period

6. Variable Hour Employee A Variable Hour Employee is an employee who upon hire it is unclear whether the employee is reasonably expected to work 30 or more hours per week or 130 hours in a month. Need to track their hours to determine full-time status and therefore plan eligibility. 120 hours per employee per month maximum when calculating.

7. Seasonal Employee A Seasonal Employee is an employee hired for 120 days or fewer during a calendar year. If the only reason an employer exceeds 50 FTE is because of the seasonal workers, then the employer will not be considered an applicable large employer. Need to track their hours to determine full-time status and therefore plan eligibility.

8. Initial Measurement Period Small business owners can use an "initial measurement period" of between 3 and 12 months to determine if a newly hired variable hour or seasonal employee will average 30 or more hours of service per week during that period. The Initial Measurement period generally will start on the employee hire date and can range from as few as 3 months to as many as 12 months. If the new variable hour employee averages more than 30 hours per week then they must be offered coverage during the subsequent Stability Period.

9. Standard Measurement Period The Standard Measurement Period is used to determine the hours worked for ongoing Variable Hour Employees. It is the time period selected by the employer (3 – 12 months) to measure the hours worked to determine plan eligibility (once selected cannot be changed and must be done on a consistent basis). Standard Measurement Periods can vary by: • Collectively bargained vs. non-collectively bargained unit • Salary vs. Hourly • Employees in different states • Employees in different entities (controlled groups)

10. Initial & Ongoing Measurement Periods Depending on the employee’s hire date the Initial and Ongoing Measurement Periods, can, and probably will, overlap, during the first year of employment.

11. Administrative Period The Administrative Period is a period of time of up to 3 months that an employer may use to determine plan eligibility (full-time status) of employees being tracked during the Initial and Standard Measurement Periods. • The use of an Administrative Period is optional. • For Ongoing Employees it must overlap the previous Stability Period. • It cannot extend the measurement or coverage period. • For newly hired variable hour or seasonal employees, the combined length of the initial measurement period and administrative period cannot extend beyond the last day of the first calendar month beginning on or after the employee’s start date’s first anniversary – 13 months in maximum. What goes on during the Administrative Period? • Eligibility determination (calculations) • Plan enrollment communications • Plan selection and enrollment

12. Stability Period The Stability Period is the period of time that an employee who was determined to be plan eligible during the Standard Measurement Period must be covered. The Stability Period must be at least as long Measurement Period, not less than 6 months and no greater than 12 months.

13. Transition Period for 2014 For employers who intend to use a 12-month measurement period and a12-month stability period. In 2013, your client may use a transition measurement period that is no less than 6 months long and begins no later than July 1, 2013. It must end no earlier than 90-days before the first day of the plan year beginning on or after January 1, 2014. The maximum administrative period remains 90-days.

14. Measuring and Calculating • Payroll/Time and Attendance Systems – critical component going forward. • Should be done per employee and at least on a per month basis • If there is any chance, via merger, acquisition, partnership, etc. that the small business may go beyond 50 FTEs small employers should measure.

15. Ongoing Employee First determine full-time status by looking back over a "standard measurement period" of between 3 to 12 consecutive months. Scenario 1 – Small business determines that an ongoing employee is a full-time employee during the standard measurement period? Next Step - Treat the employee as a full-time employee during a "stability period" regardless of the employee's actual hours during the stability period, so long as he or she remains an employee. Scenario 2 - An ongoing employee is determined not to be a full-time employee during the standard measurement period? Next Step - Treat the employee as not a full-time employee during a stability period and do not offer that employee coverage.

16. New Employee Remember 90 day waiting period. Full-time - Expected to be full-time, then offer coverage. If it is unclear whether or not the employee will work enough hours to be considered full-time. Use the "initial measurement period" of between 3 and 12 months to determine if a variable hour or seasonal employee averaged 30 or more hours of service per week during that period.

17. New Employee (continued) Scenario 1 – What should a small business do if a newly- hired variable hour or seasonal employee is determined to be a full-time employee during the initial measurement period? Next Step – Consider that employee as full-time during a subsequent stability period and offer coverage. Scenario 2 - What should be done if a newly hired variable hour or seasonal employee is determined not to be a full-time employee during the initial measurement period? Next Step –Classify the employee as not a full-time employee during a stability period and do not offer coverage

18. Example 1 • ABC Bicycle Shop has 25 full-time employees averaging more than 30 hours of work all year. They also have 40 part-time employee each averaging 100 hours a month. They have no seasonal employees. • The Math: 58 full-time equivalent employees: • 25 full-time employees+ 33.33 full-time equivalents • The Rule: Take the sum of the total full-time employees for each month in the measurement period and the total number of full-time equivalents for each month in the measurement period, divide by 12. If the combination results in a total of 50 or more the employer is an “applicable large employer”. • ABC Bicycle Shop is an “applicable large employer”

19. Example 2 • Timmy’s Toy Company has 45 full-time employees who work more than 30 hours per week all year. In October they hire 25 seasonal employees who work 80 hours a month through the end of the year. • The Math: 61.66 full-time equivalent employees: • 45 full-time + 16.66 full-time equivalent • The Rule: If the sum of an employer’s full time employees exceeds 50 for 120 days or less during the measurement period, and the employees in excess of 50 employed during the period are seasonal workers, the employer is not an applicable large employer. • Timmy’s Toy Company is not an “applicable large employer”

20. Example 3 • Gorman's Grommets has 45 full-time employees who work more than 30 hours a week all year. In August they hire 10 seasonal workers and in September they hire 2 additional seasonal workers. All seasonal workers work 80 hours a month through the end of the year. • The Math: 53 full-time equivalent employees: • 45 full-time + 8 full-time equivalents • The Rule: Gorman’s Grommets has more that 50 full-time equivalent employees during the measurement period and the seasonal worker exceptions does not apply because the number of FTE equaled or exceeded 50 for more than 120 days. • Gorman’s Grommets is an applicable large employer.