Busting myths: Capped Hours ACA Risk in a No-Health-Plan Firm, Part 1

BU010601When it comes to minimizing the costs of the Affordable Care Act, managing employees’ hours and long-term tenure is an available method, especially when the employer does not sponsor a health insurance plan.

However, the American Staffing Association recently published an Issue Paper (membership required) asserting that capping the hours and tenure of employees would violate the ACA, ERISA, and the preferences of the IRS. I respect authors of this paper greatly, but I believe the paper was institutionally biased.

Simply put, staffing firms do have options that enable them to avoid providing coverage or penalties. Here’s  a summary of a “no-plan” strategy with capped hours.

A staffing firm’s “no-plan” ACA strategy involves:

  • Not offering an MEC (“skinny”) plan or a minimum value ACA plan to temporary employees
  • Adopting a one-year lookback period for determining full-time employee status
  • Capping the hours of temporary employees at a level just under the 1560 hours threshold during each individual’s first year of employment and for each of the firm’s standard measurement years so that they are always expected to qualify as “part-time” employees under the ACA
  • Disclosing the capped hours policy to temporary employee, applicants and customers

A staffing firm that is an “applicable large employer” under ACA and that employs this strategy will be subject to ACA’s so-called “A” penalty of a nondeductible $2,000 per year for each of its full-time employees, even its insured staff employees.  However, because under this strategy, no temporary employees would ever be full-time, temporary employees would not generate any insurance cost or penalty cost.  The “A” penalty would be measured solely by the staffing firm’s full-time inside staff, minus a “deductible” of 30 or 80 full-time employees.  For many firms, the resulting “A” penalty cost would be zero.  Avoiding these ACA costs would create a big competitive advantage.

PREMIUM CONTENT: ACA: Preparing Your Staffing Company for 2015 – Webinar replay

But myths persist. In this and my next blog post, I address seven myths about the risk of capping temps’ hours and tenure.

Myth #1: Illogical Interpretation of ACA’s Definition of “Part-time” Employee. The ACA authorizes the 12-month lookback system for any part-time employee, which it defines as “a new employee who the applicable large employer reasonably expects to be employed on average less than 30 hours of service per week during the initial measurement period.” A consistently-applied 1500-hour annual cap on each temporary’s hours would squarely fit this definition, allowing all newly hired temporaries to be treated as part-time employees who will not become full-time and will therefore not generate “A” penalties.

According to the ACA’s Issue Paper, capping first-year hours at 1500 changes the person’s sub-1500-hour total in the first year from a reasonable expectation to a certainty, somehow removing that person from the part-time definition.  In other words, the Issue Paper says that it’s not reasonable to expect a certainty to come true.  They actually wrote that!  In the logical world, capping hours at 1500 creates a 100% reasonable expectation that full-time hours will not be reached during the first year, thus locking in part-time status for temporary employees hired under that policy.

In private conversations, the Issue Paper authors have admitted that a temporary employee working fewer than 1500 hours in the second and later years of employment would not be a full-time employee in those later years, because the employee would then be an “ongoing employee” tested by the employer’s standard annual 12-month lookback.  How could it make sense that a person would be full-time during the first sub-1500-hour year but not be full-time in later sub-1500-hour years?  The answer is that it couldn’t make sense.  These employees would fail to qualify as full-time in every measurement year.

Myth #2: Non-Hours Factors For Part-time Status. The Issue Paper says that capping hours ignores other factors for part-time status, then launches into a distracting discussion of the “variable-hour” factors, which do not apply to part-time status.

The only non-numerical factors that might affect part-time status are those used to distinguish immediate full-timers (like new long-term staff hires) from temporary employees subject to the hours cap.  These factors are easily satisfied.  In “no-plan” staffing firms:

  • the full-time/part-time distinction will be an almost automatic function of separate staff and temporary payrolls;
  • new temporary employees will be replacing other part-time temporary employees; and
  • the staffing firm’s tenure policy will advertise and disclose the hours cap to the temporary employees and to customers.

The Issue Paper laments that “capping employees at 1500 hours would mean the staffing firm could assign an employee on a full-time basis for up to 10 months without having to offer coverage or pay penalties,” as if that would be undesirable and be a reason not to cap hours.  That cost-saving result is the exact solution that many staffing firms need and that the regulations permit.

Myth #3: ACA “Whistleblower” Provisions. The ACA contains an anti-discrimination provision (in its whistleblower section) that forbids employers from taking negative employment actions against employees who receive subsidies under ACA.  This provision has nothing to do with full-time status, though, and the ASA Issue Paper’s attempt to connect it to hours limits is wholly irrelevant in a “no-plan” situation.

“No-plan” staffing firms with capped hours are practically immune to this kind of discrimination claim.  Some employers that sponsor unaffordable or non-minimum-value plans might be tempted to discriminate against subsidized applicants to avoid the “B” penalty that each such employee generates.  However, a “no-plan” firm falls under the “A” penalty scheme, which is triggered if any employee gets a subsidy.  If a no-plan firm employs at least one subsidized employee (which firms should assume to always be true), it will make no difference whether or not the firm’s new hires are ACA-subsidized.  That firm will have no motive to discriminate against any applicants and will therefore have no real exposure to such claims.

In my next post, I will discuss four more myths that the ASA Issue Paper seems to perpetuate with regard to no-plan, part-time situations.

MORE: How the ACA is affecting business practices

 

George M. Reardon

George M. Reardon
George M. Reardon is an attorney whose practice is focused on the staffing industry. He can be reached at georgemreardon (at) aol (dot) com.

George M. Reardon

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