Can an Employer just hire part time and temporary employees and not have to worry about the Affordable Care Act?

Posted on March 23, 2013 by Rick Rossignol

Just when you thought it was safe to go back in the water. The IRS released the rules for calculating full-time employees. The rules for determining full-time employee are designed to not allow employers to make all employees part-time, or to use a temporary agency and not have to comply with the affordable care act. Employers need to be strategic, build models, that track the hours of all employees. Examine how they currently use temps? Not understanding the rules could be costly. Organizations that split jobs because they can not afford the cost of benefits could get a big surprise! I suggest employers use the IRS rules and test the 3 months how many FTE”s do you have? How many employees are covered on insurance?


  • A “full time” employee is one who was employed on average at least 30 hours of service per week. The regulations use a 130-hour standard as a monthly equivalent of 30 hours per week.
  • For purposes of determining hours of service, the proposed rule incorporates the guidance set forth in Notice 2011-36 providing that an employee’s hours of service include the following: (1) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and (2) each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.
  • Provides rules for hourly employees and non-hourly employees, generally consistent with the approach outlined in Notice 2011-36.
  • The rule includes specific hours of service requirements for teachers and other employees of educational entities; employees compensated on a commission basis; adjunct faculty; transportation employees; and temporary staff members, among other special employment situations.
  • Codifies the “look back” method for determining the number of an employer’s employees.
  • Although through at least 2014, employers are permitted to use a reasonable, good-faith interpretation of the term “seasonal employee” for purposes of this notice, the IRS notes that final regulations may provide a specific time limit.


So let’s take a look at how the formula affects employers.

Example: During each month of 2013, an employer has 20 full-time employees, each of whom averages 35 hours of service per week, and 40 part-time employees, each of whom averages 90 hours of service per month. In this example, each of the 20 employees who average 35 hours of service per week count as one full-time employee for each month. To determine the average number of full-time equivalent employees for each month, take the total hours of service of the part-time employees (up to 120 hours of service per employee) and divide by 120. The result is that the employer has 30 full-time equivalent employees each month (40 × 90 ÷ 120 = 30). By adding the two categories of employees together, the employer would have 50 full-time and full-time equivalent employees. Therefore, the employer is an applicable large employer for 2014.

In general, there are two potential penalties (both non-deductible for tax purposes) that could be imposed on an employer for failure to satisfy the mandate. The first penalty, known as the “no coverage” penalty, is based on whether an employer fails to offer group health plan coverage to its full-time employees and their dependents. In this case, the annual penalty is $2,000 per full-time employee (minus 30 full-time employees) if at least one employee receives a premium tax credit for Exchange coverage. The second penalty, known as the “unaffordability” penalty, applies when an employer offers coverage that fails to meet certain affordability and minimum value requirements. In that case, the annual penalty is $3,000 for each full-time employee who receives a premium tax credit for Exchange coverage, but no more than what the “no coverage” penalty would be if it applied. The Proposed Regulations clarify that an applicable large employer may avoid the “no coverage” penalty by offering coverage to all but 5% of its full-time employees and their dependents. However, if any of the employees in the small group of full-time employees who are not offered coverage receives premium tax credits for Exchange coverage, the employer will be required to pay the “unaffordability” penalty for that employee.

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