“My employee left earlier this year, but now I’m hiring her back. Do I need to offer her health insurance right away?” The answer, as is the case so often, is “it depends.” Specifically, it depends on how long the employee was gone and when the employee is rehired.
Brief Background
Applicable large employers (generally those with more than 50 full-time and full-time equivalent employees in the prior year, more detail in our articles here ) are subject to the Affordable Care Act (“ACA”) employer mandate. The ACA employer mandate requires those employers to offer health coverage meeting certain requirements to their full-time employees and their dependents, or pay a penalty. For this purpose, full-time means the employee is reasonably expected to work at least 30 hours/week.
Because not all employees are obviously full-time or part-time, the ACA employer mandate rules allow an employer to measure those “variable hour” employees’ hours over a period of time (the “measurement period”). If the employee averages at least 30 hours/week over the measurement period, the employee will be treated as a full-time employee for a following stability period. (We provide more detail on measurement and stability periods here .) The stability period has to be as long as the measurement period, but it cannot be less than six months. Typically the measurement and stability periods are each 12 months long. The stability period usually coincides with the employer’s plan or policy year.
However, when an employee who was full-time leaves and comes back in the same position, are they still full-time or can an employer treat them like a newly hired employee? In other words, the employer has to figure out whether they are a “continuing” full-time employee or a newly hired employee for purposes of the ACA employer mandate.
Breaking Service
The ACA rules offer two methods for an employer to determine if an employee will be considered a continuing employee (for purposes of the ACA employer mandate) following a period of unpaid absence (including a termination). If an employee is treated as continuing, then the employee’s status as full-time or part-time continues when they return.
The two methods are:
A “Continuing” Employee
If the returning, variable hour employee was full-time before and is a continuing employee, then the employer will avoid an employer mandate penalty if the employee is offered coverage either:
The requirement to offer coverage only applies if the employee had coverage before s/he left. If the employee previously declined coverage for that stability period year, there is no need to offer coverage upon his/her return (although other plan change in status rules may trigger an offer of coverage, even if the employee was gone less than 13 weeks).
Additionally, if the returning employee was part-time when she/he left and is rehired into the same position, then s/he would be treated as part-time when s/he returns.
Finally, the rules do not require the employer to offer retroactive coverage for the period the employee was gone just because the employee is rehired. For the period s/he was not employed, the employee would likely have employer coverage, if at all, only as a result of electing COBRA .
A “New” Employee
On the other hand, if the returning variable hour employee has been gone long enough to be considered a newly hired employee, then the employee’s eligibility for health insurance is different. In that case, the employer can reapply the waiting period under its plan (if it has one). The ACA’s waiting period rules require the plan to offer coverage within 90 days. However, the plan may choose to have a shorter waiting period.
Crossing Stability Periods
But what if the variable hour employee leaves in one stability period and is rehired in the following stability period (e.g., leaves in one plan year and comes back in the next plan year)? Do these rules still apply? The answer is yes, but with a twist.
If a variable hour employee is rehired in the following stability period, the employee should be treated as if s/he had not left. The employee’s eligibility for benefits would be based on the results of the measurement period in effect at the time of (or just prior to) his/her departure. If the employee was full-time based on the hours in that measurement period, then the employer would need to offer coverage as described above for a continuing employee. On the other hand, if the employee was part-time based on the hours in that measurement period, no offer of coverage would be required.
This assumes the employee was not in a clearly full-time or clearly part-time position before leaving. If the employee was clearly full-time or clearly part-time before leaving and is rehired into the same position, then there would be no need to look at prior hours.
Practical Considerations and Caveats
In applying these rules, there are a few items to consider:
If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
NOTICE OF DISCLAIMER
The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.