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Hospitality: Affordable Care Act: Who is a Full-time Employee?

Determining an employee’s status for the requirements of the Affordable Care Act (ACA) can be challenging—especially for hospitality industry employers. With high turnover common at restaurants and hotels and employee hours varying throughout the year, many employees have the potential to be on the cusp of being “full-time.”

IRS Notice 2012-58 provides employers with optional safe harbor methods to determine who is a “full‐

time” employee for purposes of the employer “pay or play” mandate which subjects an “applicable large employer,”  those who employ at least 50 full‐time‐equivalent employees on business days during the preceding calendar year (2013), to a penalty beginning in 2014 if either:

  • The employer fails to offer coverage to full‐time employees (and dependents) and at least one full‐time employee receives subsidized coverage from an Exchange, or
  • The employer offers coverage to full‐time employees (and dependents) that does not provide minimum value or is not affordable to any full‐time employee who then receives subsidized coverage from an Exchange.

Hospitality companies with workers whose hours vary or who employ seasonal workers should review the full‐time employee safe harbor rules to avoid potential costly penalties. The guidance offers an employer flexibility to determine the full‐time workforce and provides methods to help mitigate the impact (and possible confusion) that may ensue if an employee’s hours continually fluctuate above and below the 30 hour per week full‐time benchmark1. In general, the rules allow an employer to “look back” at an employee’s hours over a specified measurement time period to determine full‐time status (average 30 hours of service per week during this period) and to assume the same “status” will apply for a designated future stability time period. The following summarizes key issues addressed in Notice 2012-58:

  • There are separate safe harbors for “ongoing employees” and “newly hired employees.”
  • New concepts such as “initial measurement period, “standard measurement period,” “stability period,” and “administrative period” are introduced.
  • An employer will not be subject to a penalty when a newly hired full‐time employee is not offered coverage while they are in the process of satisfying the plan’s waiting period.
  • An employer will not be assessed a penalty if the coverage offered to an employee is affordable (an employee is not required to pay more than 9.5% of wages for self‐only coverage for the lowest cost option made available by the employer) based on the employee’s W‐2 taxable wages reported in Box 1. This determination is made after the end of the calendar year on an employee‐by‐employee basis. However, an employer could use this affordability safe harbor to design a contribution strategy on a prospective basis to help avoid penalties.

The full-time employee safe harbor rules introduce new terminology that is important for employers to understand:

Initial Measurement Period (IMP): Period of time selected by the employer that is between 3 and 12 months from the date of hire to measure completed hours of service for newly hired hourly and seasonal employees to determine whether an employee completed an average of 30 hours of service per week during this time period.

Standard Measurement Period (SMP): Period of time selected by the employer that is between 3 and 12 months to determine each ongoing employee’s continuing full‐time status. The employer may select the months in which the SMP begins and ends and must consistently apply the SMP on a uniform basis for all employees in the same category. Employers may use different SMPs for these employment classifications — hourly and salaried employees, collectively and non‐collectively bargained employees, employees of different entities, and employees located in different states.

Ongoing Employee: An individual employed for at least one complete SMP.

Stability Period (SP): Period of at least 6 consecutive calendar months that is no shorter in duration than the SMP and begins after the SMP and any applicable Administrative Period for an employee determined to be a full‐time employee during the SMP.

Administrative Period (AP): Time between the SMP and the SP to determine which ongoing employees are eligible for coverage. The AP may not reduce or lengthen the measurement or stability period and may only last up to 90 days following the SMP.

Employers may rely on the guidance in this Notice at least through the end of 2014 and will not be required to comply with subsequent guidance that is more restrictive until at least January 1, 2015.

For additional information, please contact Jill Bergman, CEBS, Vice President – Compliance, CohnReznick Benefits Consultants, at or 516-247-3386, or Gary Levy, CohnReznick Partner and Director of the Firm’s Hospitality Industry Practice, at or 646-254-7403.


1 Proposed regulations are expected to provide that 130 hours of service in a calendar month would be treated as the monthly equivalent of 30 hours of service per week.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

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