Additional Thoughts on The Forgotten Employees Publication

I wanted to make a quick blog post about my latest publication, The Forgotten Employees – How a Treasury Oversight Will Impact Employers Wishing to Utilize the Look-Back Measurement Method.  A reader reached out to me to point out that in the real world, it is common for an employer’s actual hourly needs be different than predicted.  The reader’s point was that an employee scheduled to work 29 hours per week during the initial measurement period may in fact work 30 plus hours per week.  Additionally, the reader expressed valid concern over an employer’s ability to monitor a segment of its workforce’s hours of service.  However, this will be the harsh reality for employers limiting their workforce’s hours of service in 2015 when the Play or Pay Mandate has teeth with respect to full-time employees.
The reader expressed skepticism over the example where Stanley was working 40 hours per week during the busy summer season and 25 hours per week for the remainder of the year.  The reader’s point was there is never any certainty with an employee’s hours so Stanley who is scheduled to work 29.6 hours during a 12 month initial measurement period should be classified as a variable hour employee as it is possible Stanley could work 30 or more hours during that time period.  I agree with the reader with respect to one employee.  However, if there are 100 employees like Stanley and all the employees are accumulating just under 30 hours of service during the initial measurement period, I don’t think an employer could feel comfortable arguing it “cannot determine whether the employee is reasonably expected” to accumulate 30 or more hours of service during the initial measurement period.
Even if an employer can classify these employees as variable hours employees, the employer will be in a no win situation.  If, as the reader suggests, the employer classified all workers similar to Stanley as variable hour employees it must make sure it does not fail the 95 percent rule.  Otherwise, the employer will either be failing the 95 percent rule or, in the alternative, if the variable hour employees who are determined to be full-time employees are eligible to participate in the plan, the employer will be susceptible to an ERISA §510 claim for the segment of the workforce working below the full-time employee threshold.  Both of these options put the employer in a vulnerable position.  As I discussed in the How the Affordable Care Act, ERISA Section 510, and FLSA Section 18C Interact publication, there is danger in an employer defining a participant in its plan as a full-time employee as defined by the ACA.  If a participant in the plan is defined solely based on an employee’s hours of service, the reduction of any employee’s hours of service below the participant threshold would be in direct conflict with the ERISA §510 language of an employer being unable to interfere with the attainment of any right under a plan.
The publication in question, The Forgotten Employees – How a Treasury Oversight Will Impact Employers Wishing to Utilize the Look-Back Measurement Method, suggests a strategy that allows an employer to avoid the uncertainty all together.  I would highly recommend an employer planning to use the look-back measurement method for a segment of its workforce to consider implementing six month standard measurement periods for 2014.
Employers will have to accurately track their employees’ hours of service and carefully define a participant in their plans.  Employers must always keep in mind how the numerous complex rules associated with the ACA interact with each other.  In the coming weeks I am planning to publish an article on the different ACA strategies and how they interact.