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Applying the play or pay mandate to seasonal and temporary employees

Jeff Jones
Tuesday, Apr 2, 2013

As every employer who has not been living under a rock knows, as of January 1, 2014, the Patient Protection and Affordable Care Act (PPACA) requires employers with 50 or more full-time equivalent employees to offer qualifying health insurance to their full-time employees, and those employees’ dependants, or pay a penalty. What many employers may not know, however, is how PPACA’s employer mandate applies to seasonal and temporary employees. Although this is still a grey area, the IRS’s proposed regulations, published on January 2, 2013, offer some guidance.

The regulations include two sets of rules: (1) how to count hours to determine if an employer meets the 50-FTE threshold and (2) how to count hours to determine if a particular employee is full time and thus entitled to health insurance. Both rules address seasonal and part-time employees.

Recall that PPACA defines “full-time” as 30 or more hours per week.

(1) Inclusion of seasonal and temporary employees when determining whether an employer has 50 full-time equivalent employees.

An employer is covered by the mandate if it employed “an average of at least 50 full-time employees on business days during the preceding calendar year.” To calculate FTEs, the employer determines the number of FTEs for each month (including fractions), then adds up the number for each month, divides by 12, and rounds down to the nearest whole number.

To calculate FTEs by month, the employer first counts the number of employees who worked 30 or more hours every week during that month. The employer next adds up all the hours worked by all other employees and divides that number by 120. The two numbers added together are the FTEs for that month.

When counting full-time hours, or aggregating the hours of employees who are less than full time, the employer does not distinguish between temporary and regular employees. All workers must be counted unless the employee qualifies as a “leased employee” or a “seasonal worker.”

(a) Temporary / Leased Employees

The proposed regulations adopt the common-law definition of “employee.” That is, if the employer has the right to direct and control the worker, and the worker is subject to the will and control of the employer not only as to what shall be done but how it shall be done, then the worker is an employee. Again, there is no exception for temporary employees.

There is an exception, however, for workers who meet the definition of a “leased employee” set forth in 26 U.S.C. 414(n)(2). That statute defines a leased employee as someone who (a) provides services to the recipient employer pursuant to an agreement between the recipient and any other person (e.g. a leasing agency); (b) has performed services for the recipient on a substantially full-time basis for a period of at least one year; and (c) is subject to the primary direction and control of the recipient.

Thus, a long-term temporary employee may satisfy the definition of a “leased employee” and be subject to exclusion from the employer’s calculation of its number of FTEs. The leased employee, however, would likely be an employee of the leasing agency.

The proposed regulations recognize the logistical challenges in determining whether employees of temporary agencies are full-time employees or are reasonably expected to work full time. The regulations declined to create a broad exemption for employees employed by temporary agencies, although the IRS invited comments on rules and methods for determining full-time status that would also guard against abuse.

(b) Seasonal Workers

PPACA specifically provides that where an employer’s workforce exceeds 50 FTEs for 120 or fewer days, and where the FTEs in excess of 50 were “seasonal workers,” the employer is not subject to the mandate. In other words, if an employer normally has fewer than 50 FTEs but goes over 50 due to a seasonal increase (or increases) in staffing, the employer is not subject to the mandate as long as the seasonal increase lasted fewer than 120 days. The proposed regulations take a slightly more expansive view than the statute, permitting an employer to consider four calendar months - whether consecutive or not - as equivalent to 120 days. The proposed regulations also note that the 120 days may be consecutive or not.

PPACA defines a “seasonal worker” with reference to the Department of Labor’s agriculture regulations and with reference to “retail workers employed exclusively during holiday seasons.” The proposed regulations again take a more expansive view, stating that employers may use a reasonable, good faith interpretation of a seasonal worker by analogizing to agricultural and retail workers. It appears that as long as the worker’s position is calendar-driven, the worker will likely qualify as a seasonal worker who may be excluded from the 50-FTE calculation.

(2) Inclusion of seasonal and temporary employees when determining who is a full-time employee entitled to be offered health insurance.

If an employer employed an average of 50 or more FTEs during the previous calendar year and is thus covered by the mandate, the employer must only offer health insurance to its “full-time employees” and their dependents. (Note that the proposed regulations define “dependents” as children under 26 years of age but not spouses.) Here again, temporary and seasonal employees may be excluded in some cases.

The proposed regulations adopt a look-back measurement system for determining whether variable-hour employees are “full-time” employees who must be offered health insurance. That system permits employers to implement a “measurement period” of up to 12 months to determine whether a variable-hour employee has averaged 30 or more hours per week. The look-back system can apply to temporary employees (as long as they are hired on a variable-hour basis) and to seasonal employees. In fact, the proposed regulations specifically permit an employer to treat seasonal employees as variable-hour employees even if the seasonal employees work full time. The proposed regulations include the example of a ski instructor hired to work from November 15 to March 15 and expected to work 50 hours per week. The example notes that even though the worker would be expected to work in excess of full-time during his four-month period of employment, he would not be expected to average over 30 hours per week over a 12-month measurement period and thus would not have to be offered health insurance.

Moreover, the proposed regulations do not limit the time an employee may work as a “seasonal employee,” distinguishing a seasonal employee for this purpose from a “seasonal worker” who may be excluded from an employer’s FTE total for up to 120 days (or four months). The preamble to the proposed regulations does note that the final regulations are expected to impose some time limit, although it may be as much as six months. Note, however, that the proposed regulations also provide that where an employee is re-hired, prior service must generally be credited, unless the period of unemployment exceeds 26 weeks or was at least four weeks and exceeds the prior period of service.

In conclusion, employers with questions about how PPACA’s mandate applies to their particular situation are encouraged to contact their Wimberly Lawson attorney for guidance.

Jeffrey G. Jones is a regional managing member for Wimberly Lawson Wright Daves & Jones PLLC. He can be reached at

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