Background on the ACA Rehire Rules
Employers must comply with the Affordable Care Act’s (ACA) requirements when a former employee is rehired. This is true even if the employee has a short period of time between separation and rehire. The rules ensure that these employees receive their proper eligibility status when the employer assesses the employee for ACA coverage purposes.
There are two general circumstances in which an employee will be reactivated on the employer’s payroll. The employer may rehire the employee after a six-month involuntary separation from employment or may rehire a terminated employee before six months passes. In either situation, the employer must understand which, if any, ACA eligibility standard the employee will need to meet.
Under the aca, a rehired employee may not immediately be once again eligible for coverage . In the case of an involuntary separation of more than six months, the employee is eligible for coverage again as long as the employee is still a "full-time employee" at rehire. If the separation was "voluntary," the employee does not have to re-enter as a "full-time employee" to be eligible for coverage. A "full-time employee" is anyone who averages at least 30 hours of service to employees of the company over a 12-month standard measurement period and during the subsequent stability period. If the separation from employment was less than six months, the employer must look at whether the break in service caused the employee to lose their "full-time" status. If the employee lost "full-time" status, then the same rules for a six-month or longer separation from employment will apply. If the employee retained full-time status, then the employer will not need to make any changes to the employee’s coverage.
Who is an “Applicable Large Employer?”
An applicable large employer (ALE) includes employers that are considered large enough to be subject to the Affordable Care Act (ACA) health plan requirements. An ALE must offer affordable minimum essential health coverage to its full-time employees, or face a penalty. Under the ACA, employers are subject to either play-or-pay penalties if the employer: (1) does not offer minimum essential coverage to at least 95% of their full-time employees and their dependents; or (2) offers minimum essential coverage to full-time employees but the coverage is either unaffordable or does not provide minimum value.
Regarding ALE status, an employer needs to look at the number of people they have on their payroll throughout the year. Employees who work for everyone, including those who are variable-hour, part-time and seasonal employees, are included in the calculation. Doing the calculation on October 1st will help employers answer the question about whether or not they are an ALE during the upcoming calendar year. If the employer does not have enough employees to qualify as an ALE, even if their classification changes during the upcoming calendar year, they will not have to comply with the play-or-pay penalties or other reporting requirements related to ALEs.
The ACA states that a rehire of an employee should be treated as a new hire if the employee has been credited with less than 13 weeks of service and has experienced an employment gap of at least 26 weeks. Employers should remember that counting employment time and gaps of employment are not based solely on full weeks. It should also take into account employment time and gaps of employment for partial weeks. So, if a full-time employee quits and then is rehired after a gap of 3 weeks, the employer treats the rehire as a new hire. But if the same employee quits and is rehired 13 weeks later, the employer must treat the employee as a rehired employee and credit the employee with prior time worked for COBRA purposes.
The Break-in-Service Rules
An employer must recognize the employee’s prior period of service to apply either the standard 90-day or 30-day waiting periods. However, the employer may disregard prior service for waiting period purposes for purposes of determining the eligibility of an employee who is rehired within 30 days (the "30-Day Break-in-Service Rule"). In addition, employers will not be penalized for failing to count an employee’s prior period of service when calculating the employee’s waiting period if the employee is rehired more than 30 days after his or her prior termination.
To reaffirm, the ACA break-in-service rules set the applicable look-back period for eligibility purposes at 65 weeks and require that an employer use its first day on payroll (rather than its first day of medical coverage) as the applicable measure for calculating the 90-day and 30-day waiting periods. An employer must analyze an employee’s break-in-service period to confirm that it does not count against the employee’s waiting period.
The 13-Week / 26-Week Rule
Health Insurance Premiums for Part-Time Employees
Under the Affordable Care Act’s 2014 employer mandate rules, an employee is a full-time employee if he or she works an average of 30 or more hours per week during the measurement period, or a part-time employee otherwise. The Health Insurance Portability and Accountability Act (HIPAA) allows employers to impose special rules for rehired employees that take effect in 2015. Under these rules, employees rehired after taking a break from employment must be counted as full-time during the period of re-employment if they were full-time for any 26-week period of time, and as part-time during the period of re-employment if they were part-time for any 13 consecutive weeks. The Affordable Care Act’s language is less than crystal clear and there is extensive confusion about what it means: What they meant was that if you hire someone who had previously been a full-time employee and worked for this same employer for at least 26 consecutive weeks and then took a break of more than 13 weeks, upon his or her return the employee would immediately be considered a full-time employee subject to the employer mandate. The opposite would apply if the employee had occupied part-time status for at least half of a 26-week period and then took a break of more than 13 weeks. Upon return, the employee would be considered once again a part-time employee and would not be subject to the employer mandate. This 13/26 rule may be confusing to employers in that it does not look to an employee’s entire service record, but only identifies a 13-week and 26-week period of time preceding the return to work date. The language in the HIPAA instructions says that employers must look on a rolling basis to determine if the appropriate 13 or 26 week period has been satisfied for the purposes of determining how to treat a rehired employee. For example, let’s say that Bill was a full-time employee who worked roughly 36 hours each week until he took a leave of absence from August 1 through December 31, 2014. He worked again full-time from January 1 through March 31, 2015. If the employer hired Bill back on June 23, 2015, the employer was still within the 13-week look-back period for the lower tier (the employee was employed between January 1 and March 31, and the employer can look back 13 weeks even if the employee was on leave or not working). Similarly, for the upper tier, let’s say that Mary was a full-time employee who worked roughly 38 hours until she took leave from July 1 through September 30, 2014. She returned on October 1 and worked full-time from October 1 through November 1. If the employer hired her back on January 11, 2015, the employer was no longer within the 13-week look-back period for the part-time classification because the leave period ran from the previous July 1 to September 30. For the upper tier, you look over the entire service record, and if at any point you have been "full-time" for 26 weeks, then you are a full-time employee. Also, did you know that once you have been deemed full-time, you stay full-time despite employee absences? The law uses the term "full-time" and specifies that "If an employee is a full-time employee for one such period, [the 13/26 period] [i]n general, that employee would be expected to remain a full-time employee for the remainder of the entire plan year." So a full-time employee remains full-time even if they take a sabbatical or other leave where the employee isn’t working. It does not matter what the employee doesn’t earn during that period, as long as the employee will ultimately be paid some amount.
Effect on Health Coverage and Penalties
Employers who do not comply with the ACA mandate of providing essential health coverage may be subject to penalties. When an employee is terminated and rehired within a period of less than 26 weeks, employers may refer to rehire rules for guidance.
The rehire rules help employers to determine whether their own health care plan is considered affordable and meets minimum value. The result of such a determination determines employer’s responsibility of offering health coverage to rehired employees and possibly paying penalties if no coverage is offered .
Further, the rehire rules assist employers in determining whether an employee continues to be a full time employee for purposes of determining if the employer is responsible for offering health coverage under the ACA employer mandate.
We first note that while the rehire rules are drafted in a somewhat employer-friendly manner, they are not uniform and inconsistent with other ACA requirements for reporting health care coverage to employees and the IRS.
Applicable large employers should therefore examine rehire occurrences on a case-by-case basis to determine if any penalty will arise from an employer’s decision not to offer affordable, minimum value coverage to an employee who is terminated and then rehired.
Best Practices for Employers
To minimize problems and avoid penalties, employers should routinely review their rehire practices and use the following best practices:
Have a written policy. Employers should have a layoff and rehire policy that clearly delineates when a prior employee will be considered a "new employee" for rehire purposes and even when a former employee is considered a continuing employee who is simply being transferred (it’s likely that someone who works less than 30 hours per week will not trigger rehire status until the break in service is one year, but an employee working 30 or more hours per week may be considered a continuing employee after an absence of as little as 26 consecutive weeks).
Determine when a break in service occurs. Employers should consistently track whether hourly employees average 30 hours per week. Employers should be cautious when determining whether former hourly employees are considered rehires, especially if those employees are former employees who continue to work in the same capacity. If an employer does not have a consistent practice of tracking rehires, it will be difficult for that employer to demonstrate to the IRS that a particular rehired employee is a new employee for coverage purposes. For example, an employer who has a practice of tracking all employees who average 30 hours per week regardless of whether they average 30 hours per week on an on-going basis must demonstrate that a recently rehired employee who previously fell within that employer’s standard was not a rehire but rather a continuing employee.
Know IRS Affordability Safe Harbors. Employers should consider tracking and applying the IRS affordability safe harbors. Employers can rehire 130-hour employees one week or one month after termination and claim the ACA affordability safe harbors based on the amount paid to the employee (and other similarly situated employees) during the month or period of rehire. An employer should absolutely track an employee’s hourly status consistently if they intend to rely on a safe harbor to demonstrate that a rehire is an ongoing employee and not a new hire for purposes of the ACA. If they do not, they run the risk of being unable to satisfy the ACA’s affirmative defense burden shifting provision, which allows them to prove that they offered affordable health insurance to an employee but did not collect the employee’s required contribution.
Questions and Answers
Frequently Asked Questions about Affordable Care Act Rehire Rules for Employers
Question: If an employee temporarily leaves service for a short period, such as six months, and is then rehired, how do the hours worked for the purposes of future periods under the rules (for the look back period or otherwise) need to be aggregated?
Answer: An employer must aggregate the hours based on whether the period between break in service and rehire is less than or greater than 13 weeks. If the period is less than 13 weeks, the hours subject to the employer’s control are aggregated back to the start of the stability period (if applicable), or back to the date of hire, if no stability period has been determined. If the period is greater than 13 weeks, the hours are not aggregated.
Question: How do the hours worked for the purpose of the two types of stable periods (initial and continued) need to be aggregated when an employee separates from service and is then rehired?
Answer: If an employee separates from service and is later rehired, the hours are not aggregated any further for the purpose of the ongoing stability period , but the hours may need to be aggregated back to the beginning of the initial stability period for purposes of determining future eligibility for the ongoing stability period.
Question: My company has an "on call" position where the hours actually worked can vary from week to week and from month to month. How would such hours actually worked need to be aggregated for purposes of determining eligibility as a full time employee for purposes of the ACA?
Answer: Any hours for that individual, including hours that the individual is not actually physically present at work, but could be called in, would be counted.
Question: Does the ACA require employers to maintain payroll records for a specific period of time?
Answer: Currently, the ACA does not establish specific recordkeeping requirements. However, the Internal Revenue Service and the Department of Labor have established recordkeeping requirements for the employer shared responsibility provisions under the ACA. Under those recordkeeping requirements, employers must keep records of the following types of information:
If an employer does not meet these recordkeeping requirements, the employer may be subject to penalties.