May 31, 2018
As the school year is wrapping up and summer is almost upon us, we have many brokers getting questions from employers asking about hiring summer interns and how to handle benefit eligibility. Small employers (fewer than 50 full-time equivalents) are generally not required to offer coverage at all, and therefore have the flexibility to exclude temporary or short-term hires (e.g. interns) if they desire. However, if the interns will work enough hours while employed that they otherwise meet the plan eligibility rules, and the employer would prefer not to make an offer of coverage after the plan waiting period has ended, the employer should specifically exclude such category of employees from eligibility. For applicable large employers (50 or more full-time equivalents) subject to §4980H offer of coverage requirements, the answer is not as simple…if these interns meet the definition of “seasonal” AND the employer is using the look-back measurement method, the employer can avoid having to offer coverage with no penalty risk under §4980H. However, if not, there is risk of penalty under §4980H in excluding interns from benefit eligibility. See further detail below.
- For purposes of §4980H, a “seasonal employee” is defined as an employee in a position for which the customary annual employment is 6 months or less. The reference to customary means that by the nature of the position, an employee in this position typically works for a period of 6 months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter. In other words, if the employer hires interns throughout the year to help with projects as needed, or hires interns who typically work beyond 6 months, the interns cannot be classified as seasonal.
- If the employer is using the monthly measurement method, it doesn’t matter whether a particular employee meets the definition of seasonal. Under the monthly measurement method, any employee who achieves 130 or more hours of service during the month is considered full-time, regardless of label. If these employees are expected to average full-time hours, even on a short-term basis, an offer of coverage would be required after the plan waiting period has ended to avoid potential penalties under §4980H under the monthly measurement method.
- If the employer is using the look-back measurement method, those considered to be seasonal may be subject to an initial measurement period of up to 12 months, which prevents them from being considered full-time (either they will not average enough hours to be considered full-time over the entire initial measurement period, or they will terminate employment prior to the beginning of the associated stability period). But even under the look-back measurement method, if these employees do not meet the definition of seasonal, and they are expected to average full-time hours, an offer of coverage would be required after the plan waiting period ends to avoid incurring potential penalties under §4980H.
- So long as an applicable large employer offers coverage to 95% or more of full-time employees each month (including any interns who are determined to be full-time), the employer will avoid the bigger penalty under §4980H(a). If the number of interns is expected to be less than 5% of the employees in any given month, and the employer is confident that coverage is being offered to all other full-time employees, it may not be worthwhile to spend time worrying about whether these employees are considered full-time or part-time, and instead take the chance of incurring a penalty under §4980H(b) for any interns ultimately determined to be full-time. The penalty of approximately $290/month (in 2018) would apply only for those interns who are considered full-time, who are not offered coverage, and who enroll in subsidized coverage through a public Exchange.
