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Your Guide to Classifying Variable Hour Employees Under the Affordable Care Act

Published on 8/18/2015 12:00:00 AM
variable hour employee schedules 

The Affordable Care Act (ACA) comes into effect in 2015 for businesses with more than 100 full-time equivalent (FTE) employees. Smaller businesses employing 50 to 99 FTE employees will have until 2016 to comply or face penalties. As of now, an FTE employee is one who averages – or is expected to average – at least 30 hours per week, according to their schedule. Under the employer mandate, your variable hour workers may qualify as FTE employees, too.

Who are variable hour workers?

Variable hour workers are employees whose schedules can’t be determined in advance or who are working on an "as needed" basis. As a result, they may work 40 hours one week but only 10 the next. If they pass the IRS’s "safe harbor" test, they will count toward your total number of FTE employees and will need to be enrolled in coverage to avoid penalties.

What is the "safe harbor" test?

The safe harbor test requires employers to use a measurement period (sometimes referred to as a look-back period) between any three and 12 consecutive months to track the average weekly hours worked, including any use of paid time off. Any variable hour employee who works an average of 30 hours or more per week during the measurement period is entitled to insurance. Once the measurement period is complete, you can choose to have an administrative period of up to 90 days to identify, notify and enroll any eligible employees for health insurance.

The third and final part of the safe harbor test is the stability period, or look-forward period, which locks in an employee’s status as full-time or not. During this step, any FTE employees must be enrolled in health insurance or employers will face fines. The stability period must be six months or the equivalent of the measurement period, whichever is longer. Also, it may overlap with the administrative period to ensure you’re providing the proper coverage for your employees by the deadline.

When should your company start?

Businesses with more than 100 employees should start their measurement period, or look-back period, as soon as possible to avoid facing penalties in 2015. Depending on the length of the measurement period, smaller businesses with 50 to 99 employees should also start calculating hours worked to make sure they meet the 2016 deadline.

What will this mean for variable hour workers and your business?

It’s too early to tell. On the one hand, companies may want to increase the number of variable hour workers in an attempt to schedule fewer hours for each employee, thus locking many out of full-time status. This may, however, have a detrimental effect on businesses in the long run if these same employees seek full-time or FTE jobs elsewhere, potentially causing high turnover rates.

Regardless of whether your company opts to hire more or fewer variable hour workers, your insurance administrators (most likely your HR department) will need to be included in the employee scheduling process during the measurement period. Those in charge of scheduling should double-check with insurance administrators to make sure they’re not assigning too many hours to variable hour employees, accidentally bumping them up to full-time status. Remember: It’s the average over the entire measurement period that counts, not any single week.

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Jaime Lizotte
Presented by: Jaime Lizotte,
HR Solutions Manager
Hiring, recordkeeping, time and attendance tracking, employee discipline, filing 1099 and W2s ... all of these tasks create overhead expenses and detract from revenue-generating activities.