By Christy Abend
From tourism and construction to retail, food and even accounting, many industries have a strong seasonal component that requires hiring temporary workers to generate much of their company’s annual revenue. What some employers of seasonal employees aren’t aware of is that seasonal employees may also be eligible for employer healthcare benefits under the Affordable Care Act. In fact, an employer’s hard-earned revenue can be placed at risk of having to cover hefty IRS fines if they don’t follow the law.
It is important to note that the ACA regulations refer to both seasonal employees and seasonal workers. Seasonal employees are defined as employees hired into a position that customarily lasts six months or less per year. Seasonal workers, on the other hand, are temporary workers who perform labor or services on a seasonal basis as defined by the Secretary of Labor, as well as retail workers employed exclusively during holiday seasons.
What do benefits professionals need to know about seasonal employees and seasonal workers?
According to ACA regulations, Applicable Large Employers (ALEs – those who employ 50 or more full-time or full-time equivalent workers) must measure all of their seasonal employees for eligibility of offers for employer-sponsored health insurance the same way they do for their permanent, variable hour employees.
Let’s consider the implications for a ski resort that is an ALE (employs an average of at least 50 FT or FTEs all year) and also hires seasonal employees during the winter months of November through April. Because the business is considered an ALE, the IRS requires compliance with ACA regulations for the reporting year. That means you must measure hours your employees work – seasonal employees included – and if they're eligible at the end of their initial measurement period, you must offer health insurance to your seasonal workers by the first day of their initial stability period.
For example, an employee is hired in November on a seasonal basis as a hostess in the ski resort’s restaurant. If the employee is reasonably expected to work less than six months, they should be placed in an initial measurement period just like permanent, variable hour employees. This is true even if the seasonal employee is expected to work 30 or more hours per week during the season. While most seasonal employees are unlikely to make it through a measurement period to qualify for eligibility, employers still have to apply a measurement period to properly make that determination.
There are two methods that an employer can use to measure for benefits eligibility. The first method is called the monthly measurement method. If an employer chooses to use this method, they will need to track hours on a monthly basis for the entire duration of employment; any month where an employee – seasonal included – works 130 hours in the month, they are eligible for an offer of coverage in that month. This may not be the best option to use for employees whose hours fluctuate from month to month, since the administrative burden of offering and rescinding coverage from month to month isn’t feasible.
Alternatively, employers can choose to use the look-back method to track hours for new variable, part-time and seasonal employees. When using the look-back method, an employer predetermines a duration of time (most often, employers choose a 12 month look-back period) to measure an employee’s hours. When the employee averages 130 hours each month over the entire duration of that pre-defined measurement period, they are considered benefits eligible according to the ACA. Using the look-back method for this classification of employees reduces the possibility of seasonal workers qualifying for benefits since they aren’t expected to work beyond a six month period, and won’t make it to the end of the 12 month measurement period to qualify.
Understanding and identifying seasonal workers is important in determining whether an employer is an Applicable Large Employer (ALE) that is subject to the ACA’s employer shared responsibility requirements. The ACA regulations include an exception to ALE status for small employers who exceed 50 FTEs for 120 days or less during a calendar year when the employees in excess of 50 are comprised of seasonal workers.
What does this look like for a small employer? Let’s consider a local boutique that employs an average of 40 FTEs year round, and therefore does not meet the definition of an ALE. However, during the months of November, December, and January, the boutique employs an additional 15 seasonal workers to help with the holiday season, bringing the total number of FTEs during those three months to 55. Since the boutique exceeds 50 FTEs for less than 120 days and it only does so because of the additional seasonal workers, the boutique is exempted from ALE status and will not be subject to the ACA’s employer shared responsibility.
The key things for employers to remember are:
If you meet the classification of an ALE, you must measure the hours of all of your employees – including seasonal – for eligibility for an offer of health care coverage.
ALEs must offer coverage to at least 95% of their benefits eligible workforce, eligible seasonal employees included, or face potential 4980H(a) penalties. For tax year 2022, an “A” penalty is $2,750 per full-time employee (minus 30 employees) per year, prorated for each month below the 95% threshold. The fine might apply for only one or two months, but since this penalty applies to the total number of employees who were benefits eligible, it’s still hard-earned revenue that you’ll lose.
ALEs who offer coverage to at least 95% of their benefits eligible workforce, but fail to offer affordable coverage to some of their employees, face potential 4980H(b) penalties. For tax year 2022, a “B” penalty is $4,120 per eligible employee per year, prorated for each month the employee does not receive an offer of affordable coverage.
Employers who are not considered an ALE, and increase headcount through hiring seasonal workers for 120 days or less per year, are excluded from having to comply with the Employer Mandate requirements of the ACA since seasonal workers can be ignored when calculating ALE status.
Understanding the complexities around your ACA responsibilities can be a real challenge, especially when it comes to seasonal employees. Take more of the guesswork out and better manage your potential risk of incurring expensive fines by working with a knowledgeable and experienced ACA solutions service. Ensure your ACA service has capabilities to help measure eligibility of all employees, including seasonal employees.
Download our best practices for managing a seasonal workforce including forecasting, hiring and onboarding, what benefits can apply, offboarding, and tips to help keep them coming back.
*An earlier version of this article appeared in BenefitsPro in July 2022.
The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.
About the Author
Job Title: Director, Product Management
Christy Abend has more than two decades working in the human resources and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Her background and interests facilitate her work on the ACA products offered by Equifax Workforce Solutions. She has a Bachelor of Science degree with a concentration in Human Resource Management from the State University of New York, Empire State College and also holds a SHRM-SCP certification as well as a Group Benefits Associate designation awarded by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania.