If your company hires college students or other seasonal workers for the summer, you might be wondering whether or not the law requires you to provide health insurance to them. If you are an Applicable Large Employer (ALE) under the Affordable Care Act (ACA), you should already know that you have medical benefits obligations to your full-time employees. But do those obligations apply to seasonal employees who work full time? Let’s take a look.
Are You Even an Applicable Large Employer?
Under the ACA, an ALE is any company or organization that has an average of at least 50 full-time employees or “full-time equivalents” (FTE). The law defines a full-time employee as someone who works at least 30 hours a week.
So, let’s say you own a snow-plowing business. We’ll call it Bob’s Snow Show. You have 51 snow plow drivers working for you. During the winter months, they each work 30 or more hours every week. It sounds like Bob’s Snow Show qualifies as an ALE, right? Well, maybe not.
If those snowplow drivers only work for you from November through March (or any other period of 6 months or less), then the IRS considers them “seasonal workers.” That means that they don’t count toward your total FTE number that the IRS uses to determine your status as an ALE.
Here’s what the rule says: If an employer had more than 50 FTEs for 120 days or fewer in the last calendar year, and all of the employees in excess of 50 during that time were seasonal workers, that employer is not an ALE.
So if your business is like Bob’s Snow Show, and you have fewer than 50 full-time employees who actually work for your year round, you can skip the next section. You are not an ALE, and therefore, the ACA’s employer shared responsibility requirements don’t apply to you.
Do ALEs Have to Provide Health Insurance to Seasonal Employees?
Okay, so let’s say that you are definitely an ALE. You have more than 50 full-time employees for more than 120 days out of every year. But you also hire a few seasonal workers every summer during your busy season. If those seasonal employees work at least 30 hours a week, do you have to offer them medical coverage? That depends.
The ACA defines “seasonal employee” as “an employee who is hired into a position for which the customary annual employment is six months or less and for which the period of employment begins each calendar year in approximately the same part of the year, such as summer or winter.”
What’s more, the ACA does not exclude seasonal employees from the employer shared responsibility rule, so you might have to provide them with medical coverage. (If you don’t want to pay the penalty, that is.)
But it gets a bit more complicated than that.
The IRS has a different set of rules for determining the full-time status of “variable hours” and seasonal employees. For all of your seasonal employees who meet that ACA definition above, you have a couple of options for measuring their hours to determine whether or not they qualify as full-time employees who are entitled to health coverage.
It all comes down to which measurement method the employer chooses to use for employees who work “variable hours.” IRS regulations allow employers to choose from one of two measurement methods to determine whether or not an employee is full-time, and therefore eligible for health coverage. They are called the monthly measurement method and the look-back measurement method. Employers have to choose one method, and use it for all of their different employees. (Note: These rules don’t apply to employees who are expected to work full-time at the time they are hired.)
Monthly Measurement Method for Seasonal Employees
If you choose to use the monthly measurement method for seasonal employees, this means that you assess their full-time status every month, for the current month. All of your full-time workers, seasonal or not, would be eligible for health insurance in any month in which they average at least 30 hours per week. (That comes out to 130 hours worked per month.)
So let’s say you are an ALE and you hire seasonal workers from June 1 through August 31 each year. One of your seasonal employees works 135 hours in June, 120 in July, and 150 in August. Under the law, you have a responsibility to provide her with insurance coverage or pay a penalty in June and August. In July, she’ll have to pay her own premium.
The Look-Back Measurement Method
The second measurement method choice is the look-back measurement method. Using this method, employers determine an employee’s eligibility for health coverage based on their average number of hours worked in a past period of time. It works like this:
- The measurement period: The length of this period is up to the employer, but it has to be between 3 and 12 months long. During the initial measurement period, the employer tracks the employee’s hours and figures out an average per month. If the employee works an average of 130 hours per month during this period, then they are eligible for insurance for the next period.
- The stability period: The length of this period has to be the same length as the measurement period. It’s the period that immediately follows the measurement period. If the employee works an average of 130 hours per month during the measurement period, they are eligible for health insurance during the stability period, regardless of the number of hours they work during the stability period.
- The cycle repeats: During each new period of employment, the employer measures the employee’s average hours worked. Their eligibility for health coverage in one period depends on their hours worked in the previous period.
So why does the employer’s choice of measurement methods matter so much for seasonal employees? Because using the look-back method, a seasonal employee’s average hours worked will look much different from a non-seasonal employee.
Let’s say the employer uses a 12-month look-back period. If the seasonal employee works 130 hours every month for 6 months, then the average hours she worked per month over a 12-month period is only 65.
Using a 6-month look-back period, she averages 130 hours per month. But as a seasonal employee, she only works for you for that one 6-month period. As soon as you’ve determined her eligibility for health insurance, she doesn’t work for you anymore. That means that you aren’t providing her health coverage.
However, if you use a 3-month lookback period, she will average 130 hours per month for the first 3 months. Furthermore, you will have to provide her with health coverage for the second 3 months.
You might look at this and think, “Hey, I can just choose the 12-month look-back period, and then I won’t have to provide health insurance to any of my seasonal employees.” This might be true– but remember, you have to use the same method for all of your employees. Think about whether or not that makes sense for your business.
If your company is an ALE and you are planning to hire seasonal workers at some point, you might be required to provide them with health coverage or pay the penalty. We hope this walkthrough has helped you determine which of your seasonal employees are entitled to health benefits. If you still have questions, contact an HR specialist or ACA insurance broker. And happy almost-summer!