Written by Alden J. Bianchi
For applicable large employers (i.e., employers who employed at least 50 full-time and full-time equivalent employees on business days during the preceding calendar year) endeavoring to comply with the Affordable Care Act’s employer shared responsibility rules, determining an employee’s status as “full-time” is critically important. Final regulations implementing the Act’s employer shared responsibility requirements establish two methods—(1) the monthly measurement method and (2) the look-back measurement method—for making that call. The latter, the look-back measurement method, further classifies newly-hired employees as full-time, variable hour, seasonal or part-time. Of these, what constitutes a “new variable hour employee” has proved to be far and away the most confusing.
A recently published set of Questions & Answers made available by the American Bar Association’s Section of Taxation, Employee Benefits Committee, provides some helpful insights into the IRS’s view of which employees may be properly classified as “variable hour.” The Q&As are based on a presentation made by IRS and Treasury officials at the Tax Section’s Employee Benefits Committee May 2014 meeting in Washington, D.C. The Q&As reflect the unofficial, individual views of the government participants, which do not necessarily represent formal agency policy. Thus, they may not be relied on as precedent. They are, nevertheless, useful in gaining an understanding of how the regulators think the rules ought to work. One particular Q&A (Q&A 25), entitled “Determining Whether a New Employee is a Variable Hour Employee,” deals with the effect of the terms of an employment contract on variable hour status. The IRS response also elucidates other important aspects of the rules governing variable hour employees.