Ed Lenz, senior counsel of the American Staffing Association, led the staffing industry’s discussions with the Obama administration on the proposed look-back rules for determining the full-time status of temporary employees. Lenz disagrees with a recent post’s characterizations of regulations published by the Treasury Department and the IRS on Jan. 2.
In The Staffing Stream’s featured post of April 9 (Is the ACA 12-month Look-Back Actually More Like Three Months?), George Reardon asserts that “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.”
The issue discussed in the post basically involves the distinction made in the proposed regulations between “variable hour” and “non-variable hour” employees, although the post doesn’t use those terms. Staffing firms can use the look-back for variable hour employees but not for those who are non-variable hour.
The post correctly states that the 12-month look-back can be used for newly-hired employees who are “expected to have erratic patterns of assignments that could keep them below full-time status for the year” (such employees would qualify as variable hour). It’s also true, as stated in the post, that employers will not be allowed to rely on the expectation that an employee will not work the full 12 months as the basis for classifying an employee as variable hour at the start (it’s not their expected tenure, but their expected work patterns that matter).
But it’s not correct to assume that just because a temporary employee starts out working a full-time schedule, that they generally can’t be treated as a variable hour employees subject to a look-back up to 12 months. In fact, the proposed regulations support exactly the opposite assumption.
The proposed regulations include specific examples of variable hour scenarios typical of temporary staffing. In one, the employer expects, at the start, that the employee “will average 30 hours of service per week” for the “first few months.” Another refers to employees likely to be offered assignments that may be full-time for short-terms (“four to five months” according to the preamble). Both examples reflect what most staffing firms do and fairly represent the work patterns of the majority of temporary employees assigned in the U.S.
The examples reflect Treasury and IRS’s recognition, based on hours of discussion with ASA, that temporary employees, when they do work, generally work full-time (over 30 hours) work weeks. Hence, the mere fact that assignments are full-time at the start would not, as the post asserts, generally preclude a determination of variable hour status.
The real issue is this: if employees starting out on relatively short-term assignments (four to five months) can qualify as variable hour, at what length of assignment would they be considered non-variable? In its March 18 comments on the proposed regulations, ASA recommended that the final regulations include a “safe harbor” under which employees assigned by a staffing firm with annual employee turnover of at least 100 percent would be presumptively variable hour. The presumption would not apply to employees who, on their start date, are reasonably expected to work full-time for at least six consecutive months. Such employees would be presumed to be non-variable hour and not eligible for look-back treatment.
The government may not accept our safe harbor recommendation, but even without such a provision, the examples in the proposed regulations — which we have every reason to expect will be included in final regulations — should provide ample basis for treating most new temporary employees as variable hour.