Determining Who is a Full-Time Employee Under the PPACA: Employees Paid on a Commission Basis, Adjunct Faculty, Transportation Employees and Other Similar Positions

Employers should be starting to become fairly well acquainted with the various provisions of the PPACA. Two of the PPACA’s provisions impose penalties on applicable large employers. First, large employers can be penalized if they fail to provide enough full-time employees with a minimum level of health coverage. Second, large employers can be penalized if the health coverage they offer to employees is not “affordable” or does not meet a “minimum value” requirement. Because of these provisions, it is important for large employers to understand what employees will be considered part time and what employees will be considered full time.

For the purposes of the PPACA, a full-time employee is defined as an employee who averages at least 30 hours of service per week in a given month. By regulation, an employer can also classify full-time employees as individuals who work at least 130 hours of service per month. Instead of calculating on a month-to-month basis, regulations permit employers to utilize a safe harbor system to determine if an employee is a full-time employee. Under the safe harbor regulations, an employer can measure its employees’ hours for a measurement period, then lock in its employees as either part-time or full-time for a stability period that follows the measurement period. Because employees are locked in as either part time or full time for the duration of the stability period, keeping track of hours is extremely important. Despite the emphasis the regulations place an on tracking employee hours, many employers are baffled on how to track the hours of employees that are paid on a commission basis or are employed in some other alternative working arrangement, such as adjunct faculty and transportation workers.

Current regulations allow employers some freedom in calculating the hours for alternative working arrangement employees. Regulations dictate that, until further guidance is issued, employers may use a reasonable method to credit hours of service for such employees as long as the method chosen is consistent with the purposes of section 4980H, which describes the two penalties mentioned earlier.  The regulations go on to explain that failing to take into account the travel time accrued by a traveling sales person paid on a commission basis or failing to take into account the time accrued by an adjunct professor in preparing for class would be unreasonable.

Although the agencies responsible for these regulations have solicited comments on how alternative working arrangement employee hours should be tracked, there is little indication of how these agencies will ultimately handle the issue. Some commentators have advocated that the regulating agencies permanently adopt a regulation that allows employers to use any reasonable method to keep track of alternative working arrangement employee hours. If the agencies permanently adopted the reasonableness standard, employers would have flexibility in choosing a method to keep track of hours, but with flexibility comes uncertainty. An uncertain “reasonableness” standard results in difficulty for employers that wish to be assured that employees have properly classified as either full time or part time. If a method chosen was later deemed unreasonable and workers were reclassified from part time to full time, an employer could be faced with substantial penalties under the PPACA.

Careful employers could utilize a range of options to keep track of alternative work arrangement employee hours, but the options that are the most likely to be considered “reasonable” are probably the three that are provided by the regulations for other non-hourly employees. First, exceptionally careful employers could simply have alternative arrangement employees clock in and out on some form of a time clock whenever the employees do anything related to their job. This solution would provide the employer with a strong assurance that employees classified as part time would not later be reclassified as full time, but such a solution could pose significant administrative challenges. Further, employees may not reliably keep track of their own hours if their hours are not linked to their pay, which could result in employees being misclassified.

Second, an employer could utilize a “days-worked equivalency.” A days-worked equivalency involves crediting an employee with eight hours of service for every day in which an employee is paid (including sick days and/or vacation days), but a days-worked equivalency cannot be used if the method would understate hours of service, as when an employee consistently works more than eight hours a day. The days in which employees are “paid” should likely be broadly construed to include days that an adjunct faculty member is preparing for class, days when a commission based salesperson is traveling, and days when an employee is doing anything related to work. For employees who work less than eight hours every day, the days-worked equivalency will substantially overestimate their hours, which would provide protection for employers concerned about employees being reclassified from part time to full time.

Third, employers could use a “weeks-worked equivalency.” A weeks-worked equivalency involves crediting an employee with 40 hours per week in which the employee performed at least one hour of service.  This approach would only be practicable for intermittent employees who do not work every week.  Other novel methods could also be used, but cautious employers should avoid venturing too far off the beaten path.

Whatever method is selected, employers should err on the side of caution in classifying alternative working arrangement employees as part time.

About Jim Hamilton

I am an employee benefits partner with Bose McKinney & Evans LLP. My broad-based practice covers health and welfare arrangements, insurance, executive compensation and federal and state taxation. Among other areas, I have specific experience with PPACA, HIPAA, COBRA, ERISA and numerous other state and federal laws affecting employee benefit plans.
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