Under the Affordable Care Act, an employer must offer coverage to a Full-Time Employee (“FTE”). A FTE is an employee that works, on average, 30+ hours per week or 130+ hours per month. An employer determines an employee’s FTE status by analyzing the hours worked using a measurement method – the look-back measurement method or a monthly measurement method. What happens when the FTE becomes a variable-hour employee (e.g. part time, temporary, per diem, etc.) or when a variable-hour employee becomes a FTE? The answer depends on when the change occurs.
For example, let’s assume an employee completes a standard measurement period and meets the definition of FTE. Shortly thereafter, the employee’s status changes to a variable-hour employee. Does the employee remain an FTE during the stability period (pre-determined amount of time following the measurement period)? YES!
An employee whose status changes from FTE to variable hour will continue to be an FTE if the change occurs after the measurement period because the employee’s status has already been determined during the measurement period and the employee maintains that status during the stability period.
But what if the change in status occurs before the employee completes a standard measurement period? The employer must continue to assess the employee’s status during the measurement period and determine if the employee has met the FTE definition. If so, coverage must be offered, if not, the employer does not have to offer coverage.
What if an employee is a variable-hour employee and then becomes a FTE? If an employee’s status changes from a variable to a FTE, the employee must be offered coverage on the first day of the fourth month following the change in status.
What about COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1986? For an employee that changes status from FTE to variable hour, the employer may offer COBRA only if there is a change in status – meaning an employee’s classification changes, not merely that the hours worked dropped. One caveat – COBRA must meet affordability if the employee is classified as a FTE. As such, if an employee is an FTE during a stability period and the change in status occurs, the employer can offer COBRA, but it must be affordable. Instead of offering COBRA, many employers will maintain an employee on coverage, unless the employee decides to make a mid-year election change (e.g. drop coverage due to a qualifying event). For additional information, please speak with your USI consultant.