The penalties and discrimination rules of the Affordable Care Act are prompting many staffing firms to consider offering to all full-time temporary employees the comprehensive health insurance that they already offer to full-time in-house staff. The hope is that the additional cost of offering affordable coverage to a relatively small percentage of temporary employees would be less than the ACA penalties for not offering coverage to all full-timers.
This option seems financially feasible only because regulations proposed by the IRS would allow the full-time status of employees to be defined over 12-month “look-back” measuring periods instead of each month, sharply reducing the number of temporary employees who would become eligible for coverage. However, the number of temporary employees that would have to be offered coverage can’t be accurately estimated by simple 12-month tenure surveys of the temporary employees. Here’s one reason why.
ACA requires that coverage offered to newly hired full-time employees be effective within 90 days of their start dates (assuming they choose to participate.) IRS is having difficulty squaring this requirement with its proposed 12-month measuring period for full-time status. How can an employer know at the start date whether a new hire will be full-time for the initial 12-month period and thus be eligible for insurance within 90 days – especially a newly-hired temporary employee?
IRS tries to solve this problem by classifying newly-hired employees into three groups.
- People hired into jobs that are clearly/historically/structurally intended to be full-time and long-term (like in-house staff) must be eligible for coverage effective within 90 days.
- Newly-hired employees whose future hours and tenure are not so clear (like temporary employees) are divided into two groups. Those expected to have erratic patterns of assignments that couldkeep them below full-time status for the year can be made to wait for an offer of coverage until they have passed a 12-month look-back test of full-time service.
- Newly hired temporary employees who start out on full-time schedules (over 30 hours a week) generally can’t be made to wait a year and must be offered coverage starting within 90 days. IRS specifically forbids the employer to deny coverage to such persons in reliance on the employer’s overall tenure and turnover statistics and will, starting in 2015, also require employers to assume that newly-hired employees will serve out the entire measurement period, even if there are reasons to believe that the employment will end sooner.
Newly hired employees must be categorized on the start date. Most commercial staffing assignments begin with a full-time schedule for periods of one or more weeks. That means that many newly hired temporary employees will start out looking like full-timers eligible for coverage within 90 days.
If staffing firms fail to offer coverage to these employees, making them wait for 12 months, the employees who eventually qualify as full-time may have claims against them for not offering the coverage within 90 days. Worse, failing to offer coverage to at least 95 percent of their full-time employees could add $2,000 per employee penalties to the staffing firms’ cost of sponsoring the insurance for temporaries.
The proposed regulations include examples of new hire categorization, but they do not clearly resolve the issue. Example 12 makes it look relatively hard for a staffing firm to make newly hired temporaries wait for 12 months, but example 13 makes it seem easy for a non-staffing firm to do so.
To avoid these risks, even staffing firms that adopt a 12-month look-back system may feel compelled to offer coverage within 90 days to many newly hired temporary employees. That will raise the number of insured temporaries above the number that a simple 12-month look-back survey would predict and thus raise the expected costs of sponsoring coverage for temporaries.