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It was a little surprising this week (6/17/13) to read the insight of the Wall Street Journal’s Affordable Care Act panel of experts.  The WSJ posed this question “We’ve reported that some retailers and restaurant operators are hiring more part-time workers, or limiting part-timers to 29 hours per week, to avoid the insurance mandate.  How prevalent will these sorts of changes be?” None of the three panelist indicated that they understood the actual methodology that the IRS will use to define part-time employees.  The law does define a full time employee as one that averages 30 hours, but there is more to the definition.  David Marini, the managing director of strategic advisory services at ADP stated “there are organizations that are looking to limit the number of hours to below 30”.  Christine Eibner, an economist at RAND Corporation acknowledged “firms do make these types of structural changes to avoid requirements such as mandates”.  Kevin Kuhlman, a manager of legislative affairs at the National Federation of Independent Business said “we hear from members taking steps to reduce employee hours” and his solution was to increase the threshold above 30 hours per week.

Here is the point that they all missed. Part of the avoidance strategy is to avoid having 50 or more employees.  Remember that 50 or more employees is defined as a “large employer” and must comply with the mandate to offer healthcare to employees.   Just limiting employees to 29 hours will not work.  The 30 hour per employee limit is just part of the law.  In order to determine how many full time employees an employer has and what their average annual wages are, all employees are aggregated, full-time, part-time and leased employees, as defined in Code § 414(n).  Seasonal workers who work for the employer for more than 120 days of the year are also included as defined in Code § 45R(d)(5)

The calculation is done at year end but averages monthly.  Here is simplified example of how the calculation will work:

Example:

  • 40 full time employees
  • 50 part time employees working 29 hours a week. (50 x 29 x 4 = 5,800)
  • Total of 5,800 hours for the month/120 (this number is statutorily given)
  • 48.33 equivalent employees + 40 full timers
  • 88 full time equivalent employees for the month (regulations tell us to round down)

There are other strategies to limit an employer’s healthcare expenses that work and limit penalties.  For personalized answers to your company’s healthcare questions you can contact me at www.linkedin.com/in/vanrichards/

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