What is the Safe Harbor Method for Determining FTE Status for Ongoing Employees?

Safe Harbor methodThe requirement that employers provide affordable health insurance to employees (the “Employer Mandate”) and the associated “pay or play” penalty under health care reform has been delayed until 2015. Whether an employer is subject to the Employer Mandate along with the amount of the Employer Mandate penalty (if any) will be determined by the number of an employer’s full-time employees (FTEs). The Department of Treasury (the “Treasury”) and IRS have provided safe harbor not delay deciding and implementing measurement periods to determine which employees are FTEs.

The guidance provided by the Treasury and IRS provides safe harbor methods for determining FTE status for the following two general classifications of employees:

  • Ongoing Employees
  • New Employees (non-variable, variable, seasonal)

This article addresses the safe harbor method for determining FTE status for ongoing employees.

What is the Safe Harbor Method for Determining FTE Status for Ongoing Employees?

An ongoing employee is generally an employee who has been employed by the employer for at least one complete standard measurement period (a defined time period of between three (3) to twelve (12) consecutive months).  The employer is allowed to determine the months in which the standard measurement period begins and ends. If the employee works at least 30 hours per week or 130 hours per month) during the standard measurement period, the employer must treat the employee as a full-time employee during a subsequent stability period (a period of at least six (6) months that is no shorter in duration than the standard measurement period) regardless of the employee’s number of hours of service during the stability period. The employer may also adopt an administrative period of up to 90 days between the standard measurement period and stability period.

Example: 

In October 2013, Employer A designates the following periods for determining FTE status for ongoing employees:

Standard Measurement Period: January 1- October 30

Administrative Period: October 31- December 31

Stability Period: January 1 – December 31

Employee A works full-time during 2012 and 2013 and also during the first standard measurement period (January 1, 2014 – October 30, 2014) designated by Employer A.  Therefore, beginning January 1, 2015, Employee A must be offered coverage for the entire stability period (January 1, 2015 – December 31, 2015).

Employer Decision Points: 
Beginning in 2013, employers should make the following decisions with respect to determining FTE status for ongoing employees:

  • Determine commencement date and length of standard measurement period
  • Determine whether to include an administrative period and if so, the length of the administrative period
  • Determine whether the length of the stability period for ongoing employees will be identical to the standard measurement period or longer
  • Determine what happens if Employee A incurs a change in status (i.e., changes to a part-time position with the employer) during the stability period.  Will the employer terminate Employee A’s health coverage? Alternatively, will the employer continue to provide health coverage to employees who incur a change in status mid-year until the end of the stability period in which the change in status occurs?

This is from our Hamby’s HR Alert. Get more Health Care Reform and Other Employee Benefits News Here.

If you have concerns about determining the FTE status for ongoing employees or have questions about any other employee benefit issue, contact Hamby Benefits Law, LLC.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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