By Christy Abend
While employees may take a leave of absence for myriad reasons, human resources professionals face a similar set of challenges each time one occurs. For every employee leave of absence (LOA), the HR team must ensure that appropriate regulations are followed. This is not an easy task, particularly when it comes to meeting expectations under the Affordable Care Act (ACA).
Under the Employer Shared Responsibility Provisions of the ACA, large employers must offer health coverage that meets Minimum Essential Coverage (MEC) requirements to 95 percent of their full-time employees or be exposed to possible penalties. It sounds easy enough, but when it comes to what constitutes full-time—particularly for variable hour and seasonal employees—the answer can seem quite complicated.
The ACA defines a full-time employee as an individual who averages 30 service hours per week and/or 130 per month. When using the look-back method, employers average the number of service hours worked over a predefined period of time. This creates a challenge for employers when it comes to calculating full-time status for variable or seasonal employees who are on unpaid leaves of absence.
Suppose an employee worked a total of 1,452 hours over the course of a 12-month standard measurement period. In addition to this, the employee was on leave of absence for a period of one month. In this month of LOA, the employee recorded 0 hours of work.
Is this employee full-time for the upcoming stability period? Which calculation should you use?
When dividing the number of hours worked (1,452) by the total number of months in the measurement period (12), the employee averages 121 hours per month (which is less than the required 130 per month). Using this calculation, the employee IS NOT full-time.
The employee really only worked 11 out of those 12 months. Because of this, the calculation would be the total number of hours worked (1,452) divided by 11, instead of 12 which results in an average of 132 hours per month (which is more than the required 130 per month). Using this calculation, the employee IS full-time.
So what’s the right calculation and answer? It depends on whether the leave is considered “special unpaid leave” and protected under the ACA. We’ll explore this below.
“Protecting” special unpaid leave hours for look-back measurement
If an employee is taking any unpaid leave via FMLA, USERRA or jury duty, it is considered special leave, and the employer must “protect” the hours. This means they cannot be calculated in the look-back measurement as zero service hours. In the example above, if an employee is taking a special leave, the second example calculation is correct, and the employee is eligible for coverage under the ACA.
If the unpaid leave of absence does not qualify as a protected leave of absence, employers are not required to “protect” the unpaid LOA when applying the look-back method. If the leave does not qualify as special leave and the employer does not protect the unpaid leave, the first example calculation is correct, and the employee is not eligible for coverage under the ACA.
To manage ACA requirements, HR teams must account for this important difference in leave of absence cases and record hours appropriately.
When calculating hours of service for a look-back measurement period, the employer must treat special unpaid leave in one of two ways. They must either:
Determine the employee’s average hours of service by excluding any periods of special unpaid leave during the measurement period and applying that average for the entire measurement period.
Under this option, the employer can remove any unpaid time for a special leave of absence from the look-back calculation, thus determining the employee’s full-time status for the year minus the protected leave period. This means an employee who took a protected 30-day leave of absence would have their status determined by the remaining 335 days of the year.
This method works best for individuals on continuous leaves of absence but can be cumbersome to calculate for individuals on intermittent leave. Why? This method removes full days because it assumes the entire day was taken as LOA. This is fine (even preferred in some ways) when employees are on continuous leave.
Impute hours of service during the periods of special unpaid leave at a rate equal to the average weekly hours of service for weeks that are not part of a period of special unpaid leave.
The second option employers have is to credit the unpaid time as time worked. In this case the employer utilizes a 12-month standard measurement period and applicable employees would then have their hours worked added to their qualified absence hours to determine their total. If the employee averages greater than 130 hours over the standard measurement period through this calculation, they would be deemed full-time under the ACA.
For example, suppose an employee worked 1,524 hours over the course of a 12-month standard measurement period and took 4 hours of protected intermittent leave, once a week for 12 weeks (a total of 48 hours). To determine whether the employee was full-time, the 48 hours of intermittent leave would be added to the number of hours worked, resulting in an average of 131 hours per month (1,572 / 12).
This strategy works best for individuals with frequent intermittent absences as partial days can be credited within the calculation. However, this method requires additional resources for support in tracking and entering intermittent leave data.
Under the ACA, measuring hours worked during leaves of absence for employees with variable hours can be challenging, and for human resource departments, the onus then becomes treating them correctly under the applicable guidelines. Equifax Workforce Solutions can help HR departments navigate this challenge with technology that performs the necessary calculations and by helping HR teams determine the most appropriate methodology based on the company’s individual circumstances and workforce data.
Contact Equifax Workforce Solutions today to learn how we can help you more accurately and efficiently measure ACA-eligibility for individuals on leave of absence across your population.
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.