IRS ISSUES TEMPORARY GUIDANCE FOR IDENTIFYING FULL-TIME EMPLOYEES AND APPLYING WAITING PERIODS

On Aug. 31, the IRS issued Notices 2012-58 and 2012-59, which provide safe harbors for 2014 (and perhaps beyond that date) on how to address some of the open questions on how the employer-shared responsibility penalties will apply.

The notices affirm that employers that hire new employees who are reasonably expected to work full-time on an annual basis and who do work full-time during the first 90 days of employment must offer those employees minimum-value, affordable coverage by the end of that period or pay a penalty.

The rules described in the notices will provide substantial relief to employers that have seasonal employees or hire employees who work variable (fluctuating) hours.  Under the safe harbor, employers with employees in these categories may use a measurement period of up to 12 months to determine whether the employee is full time.  The rules are complex but essentially require a corresponding period of time after the measurement period during which the employee's status as a full-time or non-full-time employee will be deemed to continue, regardless of actual hours worked.  No penalty will apply during the measurement period, even if coverage is not offered.

The notices also:

• Confirm that employers may use W-2 income when determining whether coverage is affordable (but do not clarify how this standard applies -- if at all -- to dependent coverage)
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• Clarify that during an eligibility waiting period (including an extended measurement period for seasonal or variable-hours employees), an employee is not considered to have access to affordable, minimum value coverage for purposes of the premium tax credit
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• Clarify that the extended measurement period for seasonal and variable hours employees is an acceptable exception to the requirement that waiting periods not exceed 90 days

The notices are available at http://www.irs.gov/pub/irs-drop/n-12-58.pdf and http://www.irs.gov/pub/irs-drop/n-12-59.pdf .

Spencer Fane will be providing a Compliance Alert on this topic in the near future.  UBA will be posting an updated PPACA Summary by the end of this week and is in the process of updating the "Counting Employees" guide for advisors to reflect this new guidance. 

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