Orientation Period for New Hires

by admin | Jun 23, 2014 | Health Care Reform, PPACA

Orientation Period for New Hires

Adding a one-month orientation period may help an employer avoid complying with the new health benefits. Federal agencies are offering employers a benefits-free 30 day orientation period option in final regulations. There is also clarification on how employers must treat certain categories of new hires, as either FT , PT or Seasonal employees

The Final Regulations

These final regulations provide that the one month period would be determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date in a position that is otherwise eligible for coverage. For example, if an employee’s start date in an otherwise eligible position is May 3, the last permitted day of the orientation period is June 2. Similarly, if an employee’s start date in an otherwise eligible position is October 1, the last permitted day of the orientation period is October 31.

The new regulations implement part of the “employer shared responsibility mandate” provisions created by the Patient Protection and Affordable Care Act (PPACA). In all categories of new hire the e final regulations provide that one month is the maximum allowed length of an employment-based orientation period. For any period longer than one month that precedes a waiting period, the 90-day period begins after an individual is otherwise eligible to enroll under the terms of a group health plan.

When must an employer offer coverage:

The final regulations continue to provide that if a group health plan conditions eligibility on an employee’s having completed a reasonable and bona fide employment-based orientation period, the eligibility condition is not considered to be designed to avoid compliance with the 90-day waiting period limitation if the orientation period does not exceed one month and the maximum 90-day waiting period begins on the first day after the orientation period.

These final regulations apply to group health plans and health insurance issuers for plan years beginning on or after January 1, 2015.

When the Employer Might be Subject to a Penalty:

If at least one full-time employee of the employer buys health insurance in a public Exchange (Marketplace) and qualifies for a subsidy (either a premium tax credit or a cost-sharing reduction), the employer must pay a penalty.

There are two different types of penalties.

)The IRC section 4980H(a) penalty applies if a large employer offers coverage to less than 70% of its full-time employees in 2015 (or to less than 95% after the 2015 plan year). This penalty is $2000 annually or $166.67/month times the total number of “full-time” employees minus the first 80 (minus the first 30 after 2015). The penalty calculation does not include variable hour or seasonal employees who are in their measurement or administrative periods, even if they in fact worked on average at least 30 hours/week or 130/month during those periods. Nor does it include those who are in their stability periods but who did not qualify for coverage based on their hours worked during the associated measurement period.
IRC section 4980H(b) penalty. It applies if a large employer offers coverage to at least 70% of its full-time employees (95% after 2015), but for some full-time employees the coverage is either not “affordable” or does not provide minimum value. This penalty is $3,000 annually or $250/month for each full-time employee who buys health insurance in a public Exchange (Marketplace) and qualifies for a subsidy and for whom the employee cost for self-only coverage under the lowest-cost option available from the employer is more than 9.5% of the employee’s household income (or one of three safe harbors), or for whom the employer coverage offered does not provide at least minimum value. Again, the penalty calculation does not apply if the employee who qualified for a subsidy was a variable hour or seasonal employee who was in his/her measurement or administrative periods, nor does it include those employees who are in their stability periods but who did not qualify for coverage based on their hours worked during the associated measurement period. Additionally, the (b) penalty cannot be more than the (a) penalty would have been had it applied.

Summary and Employer Action Items

The bottom line is this:

If you hire a non-seasonal employee whom you reasonably expect (at date of hire) to work at least 30 hours/week or 130 hours/month, you must track hours each calendar month and offer benefits by the first day of the fourth month if the employee averages at least 130 hours/month for the first three months. This applies even if you hire this employee for a short-term position or a summer internship (unless you take the position, upon advice from your legal counsel, that a summer intern is a “seasonal” employee).
If you hire a non-seasonal employee and you cannot reasonably determine at date of hire if they will work on average at least 30 hours/week (130 hours/month), you can track their hours over their “initial measurement period” and not offer benefits until the associated “stability period,” if the employee averaged at least 130 hours/ month during the measurement period. The stability period might not begin until 13-14 months after the date of hire.
If you hire an employee who meets the new definition of a “seasonal employee,” you can track their hours over their “initial measurement period” and not offer benefits until the associated “stability period” if they averaged at least 130 hours/month during the initial measurement period. You do not have to offer benefits by the first day of the fourth month.

A copy of the final regulations can be obtained by clicking on the link below:

http://www.ofr.gov/OFRUpload/OFRData/2014-14795_PI.pdf

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