Many businesses have hired seasonal employees to help balance out their busy summer season. Business owners need to be aware of how the seasonal help can affect their employment numbers for the Affordable Care Act (ACA).
Basic Requirements of the Affordable Care Act
As a refresher, an applicable large employer is defined by the ACA as an employer with at least 50 full-time1 or full-time equivalent employees2 during the preceding calendar year. These large employers must provide healthcare insurance to their full-time employees that meet both the minimum essential coverage and is affordable.
Looking forward for 2015, employers with 100 or more employees must offer such coverage to at least 70% of their full-time employees. For 2016, employers with 50 or more employees must offer such coverage to at least 95% of their full-time employees. Employers who do not meet these coverage thresholds may be assessed a penalty by the IRS under the ACA’s “Play or Pay” provisions.
What is a “seasonal employee”?
A seasonal employee is classified as a worker who “performs labor or services on a seasonal basis” (IRS Section 4980H(c)(2)(B)(ii)). This is the only definition of a seasonal employee; all other references relate to whether these employees contribute to the employer’s status as a large employer.
What if you’re an employer with less than 50 full-time employees, but hire seasonal workers that push you into the large employer status?
Section 4980H(c)(2)(B) states if an employer has more than 50 full-time employees for 120 days or less (within a calendar year); in addition, those employees that exceed the 50 worker threshold during that time, are not employed for more than 120 days- are therefore classified as a seasonal employee and do not label the employer as a large employer. With this being said, the employer is not required to offer healthcare coverage to seasonal employees, regardless of their service hours.
Employees who work for only part of the year, but exceed 120 days of service in a calendar year should not be classified as seasonal employees for the purpose of the ACA. Any employee with more than 120 days of service in a calendar year will count towards an employer’s large employer status. If it is determined any such employee reached full-time status during the employer’s look-back period, then by law the employer must offer the employee the opportunity to enroll in their health insurance coverage.
How to measure employee status
Employers can measure the status of an employee based off of the Safe Harbor Method. This method gives an employer the option of using a look-back measurement period of 3 – 12 months to determine the employee status. To find out how to calculate the number of full-time employees or full-time equivalents refer to our recent blog, “ACA Questions Answered for Small Businesses“.
Fees, fines, and penalties
Large employers who do not meet the coverage thresholds as defined by the ACA may be assessed a penalty by the IRS. Penalties are calculated based on the following rules:
- Applicable large employers who do not offer healthcare coverage to any full-time employee that meet both the minimum essential coverage and is affordable; may be assessed a penalty of $2000 per year per employee if one or more of their full-time employees receive a premium tax credit for purchasing coverage through the Healthcare Marketplace.
- Applicable large employers who offer healthcare coverage to their full-time employees, but the coverage does not meet both the minimum essential coverage and is affordable to the defined thresholds of employees; may be assessed a penalty of $3000 per year for each full-time employee who receives a premium tax credit for purchasing coverage through the Healthcare Marketplace.
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1 – Full-Time employees are classified as employees who provide at least 30 hours of service per week, or 130 hours of service per month. Special service hour rules exist for teachers, employees with on-call hours, and some airline workers.
2 – Full-time equivalent employees represent a calculation of the hours worked by all other employees not classified as full-time. This determines how many equivalent full-time positions would be needed to work the same number of hours as all part-time employees.
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