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November 5, 2012

HRB 57 - A Primer on ACA’s Variable Employee Rules

Released November 5, 2012 I Download as a PDF

November 5, 2012 --  One of the centerpieces of the Affordable Care Act is commonly referred to as shared responsibility.  These provisions will take effect January 1, 2014, and includes both an individual responsibility component, and for employers employing 50 or more full time equivalent employees, it requires employers to offer adequate coverage at an affordable rate, or risk being subject to a tax.  

The individual mandate requires one to maintain a minimum level of health coverage for themselves and their dependents, or pay a penalty for each month they fail to do so.

For purposes of the shared responsibility requirement, employers employing 50 or more full-time equivalent employees (working 30+ hours per week) must either provide adequate coverage at an affordable rate, or pay an excise tax.  The penalty is calculated as follows:

  • If an employer offers no coverage or inadequate coverage and employs at least one credit employee*, the excise tax penalty is calculated monthly as (number of full-time employees – 30) x $166.67 (equivalent of $2,000 per year).
  • If the employer offers minimum value coverage (60%) at an affordable rate (9.5% of household earnings - Form W-2 income), then: no penalty.
  • If coverage fails minimum value, or is unaffordable, then the monthly excise tax penalty is the lesser of:
  • Number of credit employees* x $250 (equivalent of $3,000 per year), or
  • (Number of full-time employees – 30) x $166.67 (equivalent of $2,000 per year) 

*A credit employee is one who works at least 30 hours per week and who is eligible for a premium tax credit or cost sharing assistance for buying insurance through an exchange.

One of the significant concerns that has been raised with regard to implementation of this requirement relates to what has become known as variable employees.  A variable employee is one for whom it cannot be reasonably determined at the time of hiring whether the individual will be regularly scheduled to work at least 30 hours per week.  Examples of individuals who would likely fall into the variable employee category include, among others, substitute teachers and construction workers. 

In August 2012, the governing agencies issued some guidance specifically applicable for the initial year of compliance (IRS Notice 2012-59DOL Technical Release 2012-02, and CCIIO Guidance).  This guidance offers a safe harbor that can be used for purposes of establishing whether an individual is regularly scheduled to work 30 or more hours per week.    

In effect, the guidance allows an employer to establish a “measurement period”.  If during a measurement period, an individual is determined to have worked 30 or more hours per week, then that individual is deemed to be regularly scheduled to work 30 or more hours per week during the “stability period”.  Put another way, the measurement period is a look-back; and, if the person qualifies during the look-back, then the individual is deemed qualified during the stability period, without regard to whether the individual actually meets the standard during the stability period.  The stability period then becomes the measurement period for the next stability period. 

The employer can design a “standard measurement period” for on-going employees and an “initial measurement period” for new employees.  The initial measurement period can only be used for individuals who have not been employed for a full standard measurement period.  The measurement period must be the same for all individuals in a particular classification of employee. The rules only allow four types of classifications of employee; they are:

  1. Collective bargaining vs. non-collective bargaining;
  2. Salary vs. hourly;
  3. Distinct business entities; and
  4. Geographic distinction employee populations that reside in different states.

The measurement period can be anywhere from 3 to 12 months long.  The stability period must match the measurement period, though it can be no shorter than 6 months.  The stability period must be the same for new and on-going employees. 

In addition, an “administrative period” of no longer than 90 days is permitted, as long as the maximum period never exceeds 13 months.  The administrative period between the measurement and standard period is used for activities such as open enrollment. 

For employees who are hired without a set schedule, the use this look-back (measurement period) and stabilization period should be useful to employers in determining their responsibilities under the law.

90-Day Waiting Period Restriction 

As a separate matter, it should also be noted that beginning on the first day of the first plan year occurring on or after January 1, 2014, the maximum waiting period that can be imposed by any plan, not limited to employers employing 50 or more employees, is 90 days.  Recently issued guidance provides that the 90-day period begins at the point that the individual has “met the plan’s substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan’s terms)”.  If, for example, an individual is part-time, and if part-time people are not eligible for health benefits, and the individual moves to a full-time classification for which benefits are available, the 90-day wait begins at that point. 

For individuals hired with a variable work schedule and for whom it is not possible to determine whether the individual will qualify, a measurement period of anywhere from 3 to 12 months, as defined by the employer, can be used to determine whether the individual qualifies under the terms and conditions of the employer plan.  This measurement period is similar to the measurement period described above.

The guidance makes it clear that the employer cannot impose qualification standards as a way to avoid commencement of the 90-day wait.  In other words, employment classifications must have a legitimate business purpose. 

Next Steps

In preparing for January 1, 2014, employers should:

  1. Assess their workforce and determine which, if any, classifications of employees might fall within the definition of variable employee.
  2. Define an appropriate measurement period from 3 to 12 months.
  3. Establish a stability period that is at least 6 months in duration or longer, if the measurement period is longer.
  4. If the group of variable employees typically works fewer than 30 hours per week, the employer might want to put mechanisms in place to ensure this standard is maintained.  For variable employees who do, on average, work more than 30 hours per week, determine whether health benefits will be offered, understanding the potential liability if benefits are not offered.

Background CBIZ Health Reform Bulletins:


About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.



The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation.

The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.


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