FAQ: We are a large employer subject to the employer mandate. One of our employees just switched from full-time to part-time. When should we terminate coverage?
September 13, 2022
There are specific rules related to eligibility and changes of status related to the employer mandate. A change in status means that the employee has had a bona fide change in employment status from part-time (PT) or variable hour to full-time (FT) or vice versa. It does not include an employee who has not experienced a bona fide change in employment and whose hours are simply trending lower or higher.
As a reminder, an applicable large employer subject to the employer mandate has two methods for determining FT employees: monthly measurement and look-back measurement. An employer must use the same method for all employees in the same category. For this purpose, there are only four identified categories: collectively bargained and non-collectively bargained employees, employees covered by different collective bargaining agreements, salaried and hourly employees, and employees whose primary places of employment are in different states.
If an employer is using the monthly measurement method, then eligibility is determined on a monthly basis. If an employee had a bona fide change from FT to PT, the employee would lose eligibility at the end of the month when the change in status occurred. COBRA would be offered for a reduction of hours. If an employee has a change from PT to FT, the employee would be offered coverage the first of the month following the change.
If the employer is using the look-back measurement method, there are different rules for new employees versus ongoing employees. An ongoing employee is defined as one who has been employed for an entire standard measurement period.
Let’s first consider an ongoing employee determined to be FT upon hire and initially offered coverage following the plan’s waiting period. If that FT employee has a change in status to PT, the employer may terminate eligibility on the first day of the fourth month following the change (assuming the employee has indeed worked PT hours during the interim three months). If an employer terminates eligibility prior to this date, there is risk of an employer mandate penalty. Again, COBRA would be offered for a reduction in hours.
If an ongoing employee was determined to be PT during the most recent measurement period and experiences a change to FT, their ineligibility may remain through the corresponding stability period. An employer may be more generous and offer coverage earlier. For example, the employer may offer coverage following the waiting period or the first of the fourth month following the change.
Next, let’s discuss new employees under the look-back measurement method. If a new employee is determined to be FT upon hire, offered coverage following the waiting period and then experiences a change in status to PT, the employer may terminate eligibility at the end of the month when the change occurred. If the new employee was determined to be PT (or variable hour) upon hire, placed in an initial measurement period and then has a change in status to FT, the employee must be offered coverage by the first day of the fourth month following the change (or the first day of the initial stability period, whichever is earlier).
As one can see, these rules are very complex. NFP has a whitepaper and chart that can assist you in reviewing and applying these rules. Please ask your consultant for a copy of “ACA Look-Back Measurement Method: Offers of Coverage and Changes in Status.”