H&W: Full-time Employee Status – IRS Notice 2015-87.

This is the third in our series of Blogs covering IRS Notice 2015-87.  The first blog discussed the integration of HRAs and similar arrangements into an employer’s group health plan.  The second blog focused on the affordability of employer-sponsored coverage.  In this blog, we continue our coverage of Notice 2015-87 under the rubric of miscellaneous items related to the ACA.

Full-time Employee Status: 

A person’s status as a full-time employee is calculated based on that person’s “hours of service”.  Existing guidance contained some ambiguities regarding the crediting of hours of service in certain circumstances.  The Notice addresses some of those situations.

  • An hour of service does not include (1) an hour for which an employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workmen’s compensation, or unemployment or disability insurance laws; and (2) an hour of service for a payment which solely reimburses an employee for medical or medically related expenses incurred by the employee.
  • However, periods during which an employee is not performing services, but is receiving payments due to short-term disability or long-term disability, do result in hours of service for any part of the period during which the recipient retains status as an employee of the employer. This will include sick leave as a payroll practice and insured or self-insured employer-sponsored disability plans.  It includes arrangements paid for solely by an employee if the payments are made on a pre-tax basis such as through a cafeteria plan.   However, it does not include payments from coverage arrangements to which the employer does not contribute and are purchased on an after-tax basis by an employee.
  • Under existing rules, for an employer that is an educational organization, an employee who resumes providing service to (or is otherwise credited with an hour of service after a period during which the individual was not credited with any hours of service) may be treated as having terminated employment and having been rehired, and therefore may be treated as a new employee upon the resumption of services only if the employee did not have an hour of service for the applicable large employer for a period of at least 26 consecutive weeks immediately preceding the resumption of services. For example, teachers that perform no services during a summer break cannot be treated as new employees for purposes of accumulating hours of service.  The Notice extends this rule to individuals providing services to an educational institution through staffing agencies – for example, bus drivers or cafeteria workers – unless the worker is provided a meaningful opportunity to perform services for the institution during all months of the year.

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