Determining who is a full-time employee is an essential task under health care reform’s employer mandate, which generally imposes significant penalties on large employers who fail to offer their full-time employees affordable coverage that provides minimum value. Identifying an employer’s full-time employees is important for assessing which employers are subject to the employer mandate and also which employees must be offered health coverage to avoid the penalties. Although the IRS has issued significant guidance over the last few years, many employers continue to struggle with how to apply the evolving guidance to certain groups of employees. The IRS recently issued final regulations on the employer mandate that help clarify some (but not all!) of the open issues. Below are some highlights from the final regulations that may assist employers when identifying their full-time employees for health care reform purposes.
 
Guidance Related to Determining Whether the Employer Mandate Applies
The rules generally provide that employers with an average of at least 50 full-time and full-time equivalent (“FTE”) employees are subject to the employer mandate. The final regulations continue to provide that this analysis must be conducted on a “controlled-group” basis (meaning that an employer must count employees of certain related companies as if they were its own employees). Note that while the employer mandate is generally effective January 1, 2015, transition guidance provides that certain employers may qualify for an additional year of relief if the employer has at least 50, but less than 100, full-time or FTE employees. For more information on the transition rules, click here.
 
For employers that must comply with the employer mandate on January 1, 2015, the final regulations permit an employer to use a period of 6 months in 2014 (rather than the entire 2014 calendar year) to determine whether it crosses the 50 (or 100, as applicable) full-time or FTE employee threshold. In addition, for the first year an employer becomes a large employer that is subject to the employer mandate, the final regulations generally provide employers with an administrative period through March 31 during which the employer will not be subject to any penalties for not offering health coverage.
 
Determining Full-Time Employee Status
If an employer is subject to the employer mandate, health coverage must be offered to its “full-time employees” to avoid the penalties. The final regulations continue to provide that a “full-time employee” generally is an employee who is employed on average at least 30 hours per week. To determine whether an employee is employed on average at least 30 hours per week, the final regulations retain the optional look-back measurement method and clarify the use of a monthly measurement method.

• Look-Back Measurement Period. The look-back measurement method mostly follows the rules in the proposed regulations. Generally, an employer may determine an employee’s status based upon the employee’s hours of service in a prior “measurement period,” which must be at least 3 months, but no more than 12 months, long. The employee is then considered to be a full-time employee or not during a future “stability” period, which must be at least 6 months long, but not shorter than the measurement period. For 2015 only, employers may be eligible to use a 6-month measurement period and a 12-month stability period.
 
• Monthly Measurement Method. For employers that elect not to use the look-back measurement method, the final regulations clarify that an employer may use a monthly measurement method. Under this method, subject to certain rules set forth in the final regulations, employees are identified as full-time employees in “real” time using hours of service during each calendar month. 

 If and how to use a measurement method depends on whether the new employee is considered to be a “variable” employee. The final regulations include the following guidance to help an employer determine whether an employee is a variable employee: whether the new hire is replacing an employee who was (or was not) a full-time employee, the extent to which employees in the same or comparable positions are or are not full-time employees, and whether the job was advertised or communicated to the new hire as requiring more (or less) than 30 hours per week.
 
Issues to Consider for Certain Types of Employees
Employers have found it difficult to apply the full-time employee rules to particular groups of employees based on the nature of certain jobs. The final regulations include guidance on how to address several types of employees. Note that we expect additional guidance in the future as the agencies continue to consider the various issues involved with these and other groups of employees.
 
Seasonal Employees
Seasonal employees may be treated as variable employees even if they are expected to work 30 or more hours per week. The proposed regulations did not provide a definition for the term “seasonal employees,” but the final regulations generally define seasonal employees as workers for which the customary annual employment is typically 6 months or less, but only if the position begins around the same time each year (e.g., winter or summer).
 
Adjunct Faculty
The final regulations provide that it is reasonable to credit an adjunct faculty member with 2.25 hours of service per week for each hour of teaching or classroom time plus an hour of service per week for each additional hour outside the classroom the faculty member spends performing duties (e.g., office hours or faculty meetings).
 
On-Call Hours
The final regulations generally state that an employer must use a reasonable method to credit an employee who has on-call hours, but it is generally not reasonable if the employer fails to credit any on-call hours for which the employee is paid, for which the employee is required to remain on-call on the employer’s premises, or for which the employee’s activities while on-call are subject to substantial restrictions that prevent the employee from using the time effectively for his or her own purposes.
  
Volunteer Employees
The final regulations provide that hours of service do not include hours worked as a “bona fide volunteer.” Special rules apply to who is a “bona fide volunteer.”
 
Student Employees
While the final regulations do not adopt a general exception for student employees, the final regulations provide that hours of service performed by students in positions subsidized through the federal work study program or a substantially similar program of a state or political subdivision thereof are not counted for purposes of determining whether that student is a full-time or FTE employee.
 
Traveling Commissioned Salespeople
The rules generally provide that a reasonable method must be used when determining how to credit hours of service for a traveling commissioned salesperson, but it would not be reasonable if an employer fails to take into account travel time for a traveling salesperson compensated on a commission basis.
 
Airline Employees
If an airline employee is compensated for layover hours, the rules provide that an employer must credit the hours for which the employee earns his or her compensation. If an airline employee is not compensated for layover hours, it is generally considered reasonable to credit the employee with eight hours for each day on which the employee must stay away from home overnight for business.
 
Religious Orders
The final regulations provide that, at this time, a religious order may disregard hours worked by any individual subject to a vow of poverty performing work usually required by an active member of the order.