Rehires and the ACA Employer Mandate
“My employee left earlier this year, but now I’m hiring her back. Do I need to offer her health insurance right away?” The answer, as is the case so often, is “it depends.” Specifically, it depends on how long the employee was gone and when the employee is rehired.
Applicable large employers (generally those with more than 50 full-time and full-time equivalent employees in the prior year, more detail in our articles here) are subject to the Affordable Care Act (“ACA”) employer mandate. The ACA employer mandate requires those employers to offer health coverage meeting certain requirements to their full-time employees and their dependents, or pay a penalty. For this purpose, full-time means the employee is reasonably expected to work at least 30 hours/week.
Because not all employees are obviously full-time or part-time, the ACA employer mandate rules allow an employer to measure those “variable hour” employees’ hours over a period of time (the “measurement period”). If the employee averages at least 30 hours/week over the measurement period, the employee will be treated as a full-time employee for a following stability period. (We provide more detail on measurement and stability periods here.) The stability period has to be as long as the measurement period, but it cannot be less than six months. Typically the measurement and stability periods are each 12 months long. The stability period usually coincides with the employer’s plan or policy year.
However, when an employee who was full-time leaves and comes back in the same position, are they still full-time or can an employer treat them like a newly hired employee? In other words, the employer has to figure out whether they are a “continuing” full-time employee or a newly hired employee for purposes of the ACA employer mandate.
The ACA rules offer two methods for an employer to determine if an employee will be considered a continuing employee (for purposes of the ACA employer mandate) following a period of unpaid absence (including a termination). If an employee is treated as continuing, then the employee’s status as full-time or part-time continues when they return.
The two methods are:
-A 13 Week (or Longer) Break in Service. If the employee is rehired after a period of at least 13 consecutive weeks (26 weeks for educational institutions) where s/he did not work or provide an hour of service, the employer can treat the employee as a new employee.
-Rule of Parity. If an employer wants to use a break period shorter than 13 consecutive weeks (26 weeks for educational institutions), it can apply this rule of parity. Under this rule, an employee can be treated as a new employee if the number of weeks during which no services are performed is both (1) at least four weeks long and (2) exceeds the number of weeks of employment immediately preceding the period during which no services are performed. For example, if an employer uses the rule of parity, an employee who works for five weeks and then has no credited hours for six weeks may be treated as a new employee on rehire. This rule of parity really only applies to employees who leave before completing 13 (or 26, for education institutions) weeks of service.
A “Continuing” Employee
If the returning, variable hour employee was full-time before and is a continuing employee, then the employer will avoid an employer mandate penalty if the employee is offered coverage either:
-The first day that the employee is credited with an hour of service (basically, when the employee starts work); or
-If later, as soon as administratively practicable (often the first of the month following the date of rehire, which is allowed under the rules).
The requirement to offer coverage only applies if the employee had coverage before s/he left. If the employee previously declined coverage for that stability period year, there is no need to offer coverage upon his/her return (although other plan change in status rules may trigger an offer of coverage, even if the employee was gone less than 13 weeks).
Additionally, if the returning employee was part-time when she/he left and is rehired into the same position, then s/he would be treated as part-time when s/he returns.
Finally, the rules do not require the employer to offer retroactive coverage for the period the employee was gone just because the employee is rehired. For the period s/he was not employed, the employee would likely have employer coverage, if at all, only as a result of electing COBRA.
A “New” Employee
On the other hand, if the returning variable hour employee has been gone long enough to be considered a newly hired employee, then the employee’s eligibility for health insurance is different. In that case, the employer can reapply the waiting period under its plan (if it has one). The ACA’s waiting period rules require the plan to offer coverage within 90 days. However, the plan may choose to have a shorter waiting period.
Crossing Stability Periods
But what if the variable hour employee leaves in one stability period and is rehired in the following stability period (e.g., leaves in one plan year and comes back in the next plan year)? Do these rules still apply? The answer is yes, but with a twist.
If a variable hour employee is rehired in the following stability period, the employee should be treated as if s/he had not left. The employee’s eligibility for benefits would be based on the results of the measurement period in effect at the time of (or just prior to) his/her departure. If the employee was full-time based on the hours in that measurement period, then the employer would need to offer coverage as described above for a continuing employee. On the other hand, if the employee was part-time based on the hours in that measurement period, no offer of coverage would be required.
This assumes the employee was not in a clearly full-time or clearly part-time position before leaving. If the employee was clearly full-time or clearly part-time before leaving and is rehired into the same position, then there would be no need to look at prior hours.
Practical Considerations and Caveats
In applying these rules, there are a few items to consider:
-If the employee is being rehired into a different position, then the employer may have to reevaluate. For example, if an employee who was clearly part-time is rehired into a position that is clearly full-time, then the employer will likely need to offer coverage even if the employee was in his/her stability period at the time of termination.
-The above rules should be spelled out in plan documents or other plan communications and should be applied consistently.
-This discussion only addresses the ACA employer mandate rules. These rules do not apply to other employer policies, practices, or discretionary employer benefits. Employers rehiring employees also need to confirm that they follow any rules in the health and cafeteria plans regarding elections for rehires. Employers are allowed to be more generous than the ACA employer mandate rules require.
-The discussion above assumes the employer is using the measurement/stability periods. It is possible to measure hours on a monthly basis and determine full-time status that way. However, for the reasons we detailed here, that often isn’t practical.Even if an employer is using the monthly measurement period, the 13/26 week rule and the rule of parity still apply.
If you have any questions, please contact your FNA Advisor.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.