Will Reducing Part-Time Hours Avoid the Large Employer Mandate?

Download PDF Report >>> ACA Large Employer Mandate

SUMMARY

There has been much discussion about employers reducing hours for part-time workers to less than 30 hours per week.  The argument is this will exempt employers from penalties under the ACA because penalties apply only to “full-time” workers not offered health insurance.

However, a careful reading of the Act suggests that only for purposes of assessable employer penalties, that “full-time” definition is overridden. What does apply is an aggregate 40 hour week. For instance, two part-time employees working 20 hours would equate to one full time employee.

Depending on the aggregate number of hours of part-time “non-seasonal” employees, and on whether or not a company offers health insurance to any of its employees, a company can be penalized between $2,000 to $3,000 per year per un-insured employee if the number of full-time workers PLUS full-time equivalent workers is 50 or more.  In conclusion, switching from full-time to part-time workers of equal total hours worked may not avoid the ACA employer mandate.

REFERENCE

The discussion includes line references in [bold brackets]. These refer to excerpts from the Affordable Care Act regarding employer shared responsibility. The full path to this excerpt is “TITLE I, Subtitle F, Part II, Section 1513”. For reference, each line in the excerpt is numbered, and key discussion points refer to the Act by those line numbers in [bold brackets].

Website formats do not show these line numbers so a PDF file needs to be downloaded which does show these line numbers in the ACA excerpt. The download link appears both at the beginning and at the end of this analysis.

DISCUSSION

The Affordable Care Act has been shrouded in controversy since well before it even was signed into law in March, 2010. Since then, little has improved. The House of Representatives has passed 38 (and counting) laws to repeal the Act. With the Supreme Court having ruled, a continuing emphasis has been made to circumvent provisions considered onerous.

One of the ways getting media attention is companies cutting back on the hours of part-time employees to insure that they work less than 30 hours per week. 30 hours is the point at which an employee is defined as full-time [lines 78-79] and counts toward the large employer mandate.

Small employers remain exempt from penalties as regards offering health insurance. Large employers, though they have a one year penalty delay, must offer health insurance. An important definition in ACA is that of “large employer.” The ACA does not simply define any large employer, but rather defines an “applicable large employer” [lines 41-44] for which the ACA mandate provisions specifically apply.

For instance, an employer would NOT be considered large if its workforce was [a] less than 50 full- time employees for at least 8 months, and [b] not more than 4 months per year in which [c] seasonal employees cause employment to rise above 50 [lines 44-50]. Agricultural workers bringing in the harvest and extra retail clerks during Christmas are examples of seasonal workers that would not trigger employer liability.

The issue is over smaller companies that have just over 50 full-time employees.  Should they reduce hours of some employees to have less than 50 workers? Apparently, some companies are doing so to avoid the ACA mandate. But that may not work if they employ many part-time workers.

Two examples serve to test this issue. Call these companies “ACME1” and “ACME2”. Each has 35 full-time workers (30+ hours per week) and 60 part-time workers at 20 hours per week each. They differ only in that ACME1 does not offer health benefits for anyone [lines 9-11] while ACME2 offers benefits to its full-time workers [lines 22-24].

Under ordinary worker definition, neither ACME is a “large employer”.  But ACA uses a different definition to determine “applicable large employers” that are subject to the liabilities and penalties of ACA. For “applicable large employers”, the definition of full-time employees INCLUDES the aggregate number of hours of part time employees per month divided by 120, [lines 63-68] which average is 30 hours per week, the minimum for full time employee..

For each ACME, the aggregate hours/month of 60 part-time workers is 4,800 (60 workers x 20 hours/week x 4 weeks) or 40 (4,800 total hours/120 ACA aggregate) full-time equivalents each. Adding 40 full-time equivalents to each ACME workforce results in 75 “full-time” workers. That is above ACA’s 50 worker cutoff and each would be defined as an “applicable large employer”.

Each of these employers is then liable for an assessment under the ACA, but their penalties are different. Both the penalty rate and the employee penalty count are different.

The liability rate for ACME1 that did not offer health insurance [lines 8-11] is $2,000/year [lines 38-39] applied to ALL its employees [lines 16-18]. The liability rate for ACME2 that did offer insurance to full-time workers [lines 19-24] is $3,000/year [lines 29-31] but applicable only to the full-time equivalents of its part-time employees.

The ACA does allow an exemption of 30 employees when determining the assessment liability [lines 56-61]. ACME1’s employee count would be 45 “full-time” employees (35 actual plus 40 full-time equivalents less 30 exemptions). Applied for a full year, the penalty is $90,000 (45 * $2,000).

The 30 employee exemption applicable to ACME2 has a different effect. The 35 full-time employees are excluded. That seems to leave the 30 count exemption to apply to the full-time “equivalents”.  Just like ACME1, the aggregate count of these full-time equivalents is 40. With an exempting 30 of these employees leaves 10 liable to penalty. Applied for a full year, the penalty is $30,000 (10 * $3,000).

In conclusion, switching from full-time to part-time workers of equal total hours worked may not avoid the employer’s responsibility for offering its workers health insurance.

Download PDF Report >>> ACA Large Employer Mandate

 

One Response

  1. […] analysis by Andrew Kurz, a respected health policy expert and supporter of ObamaCare. Back in June, he posted a summary of the employer mandate along with the relevant text from the law at his website, […]

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