Seasonal Workers and Your Employee Benefit Plans
Summer is fast approaching and we find ourselves answering a number of questions regarding the coverage of seasonal workers in employee benefit plans. For employers planning to ramp up hiring for the summer season we offer this brief review of the treatment of seasonal employees for purposes of your employee benefit plans, with emphasis on issues under the Affordable Care Act.
The Affordable Care Act requires "large employers" to offer affordable health care coverage to all full-time employees and their children (but not their spouses) beginning with the first plan year on or after January 1, 2014, or pay a penalty. For this purpose, a "large employer" is an employer that employed an average of 50 or more full-time employees or full-time equivalent employees during the preceding year. A "full-time employee" is an individual who is employed an average of at least 30 hours per week or 130 hours per month. "Full-time equivalent employees" (FTEs) are calculated by taking the aggregate number of service hours of non-full time employees during the month and dividing by 120. Importantly, the number of full-time employees and FTEs is determined on a controlled group basis, so all individuals employed by the organizations that are members of the controlled group (for example, a parent company and its subsidiaries) are treated as being employed by a single employer.
All employees, even those who may only work for part of the year, must be included in the count of full-time employees unless they truly are "seasonal" and fall within the fairly narrow definition provided under long-standing Department of Labor regulation 29 CFR § 502.10(b)(3)(ii)(A), as amplified by 26 USC § 4980H(c)(2)(B)(ii). (Guidance issued by both IRS and DOL under the Affordable Care Act confirms that these regulations continue to application and there is no indication that they regulations are likely to be revised in the near future.) Under proposed IRS regulations an employee may be considered a seasonal employee and disregarded for purposes of the head count if he or she: (1) was employed for no more than 120 days (or four months) during the preceding calendar year; and (2) performed labor of a type that is exclusively performed during certain periods or seasons and is not of a type performed continuously during the year. Under this definition blueberry pickers and retail employees employed exclusively during the holiday season should be considered seasonal employees, but extra wait staff hired by a year round restaurant during the high season generally will not. We recommend that any employer with a non-seasonal workforce (including FTEs) of 50 or fewer individuals take a close look at the rules regarding seasonal workers because it may be able to avoid large employer status by applying the seasonal employee exclusion.For further information about how these rules work, we recommend this set ofQuestions and Answerspublished by the IRS.
Remember that temporary and part time employees are counted only for purposes of determining how many FTEs an employer has (and, therefore, will affect the determination of large employer status). They need not, however, be offered health insurance coverage (because they are not full-time employees) and they are not counted in computing the penalty.
Seasonal employee participation in a company's retirement plans depends upon the terms of the plan. In general and as explained in an oft-cited IRS Field Directive from 1994, a plan may not include a blanket exclusion of part-time, temporary, or seasonal employees. That is because such employees could very easily accumulate the number of hours of service required for participation. Therefore, if a seasonal employee works the minimum hours required by the plan during the year (typically 1,000 hours) then he or she may be eligible for participation unless some other non-hours based exclusion applies.