Summer is upon us and with it a number of annoyances. Mosquitos. Road construction. And those pesky Affordable Care Act (ACA) compliance responsibilities that tend to slip during summer months following the push to submit annual ACA information filings to the IRS.
The summer months, of course, also brings seasonal workers, called upon to meet the high demands of businesses ranging from restaurants, hotels, and other hospitality providers to construction crews of all types, and farm laborers. Now that the pandemic is behind us, pent up demand means that the need for seasonal workers to support that demand is higher than ever.
Unfortunately, that demand also fuels the need to ensure that businesses are on top of their ACA compliance, which requires them to determine whether these seasonal workers or employees fall into the full-time equivalency category. Failing to classify them correctly can lead to significant ACA penalties from the IRS.
What may seem like subtle distinctions can lead to major problems. Like the distinction between “seasonal workers” and “seasonal employees.”
What Are Seasonal Workers?
As the term suggests, “seasonal workers” are those who work on a seasonal basis. As the ACA Times indicates: “A ‘seasonal worker’ is someone who performs labor or services on a seasonal basis as defined in certain U.S. Department of Labor regulations.” These workers include agricultural laborers and retail employees.
Why does the definition matter? Because the IRS considers seasonal workers when determining whether organizations are Applicable Large Employers (ALE). To be considered an ALE an employer would need to have more than 50 full-time employees, including full-time equivalent employees (employees who work 130 hours a month).
So, how do seasonal workers differ from seasonal employees, and why does it matter?
What Are Seasonal Employees?
The IRS considers a seasonal employee to be someone hired for a position that has an annual duration of six months or less. A common summertime example would be a lifeguard at a local pool.
According to the IRS, the term “seasonal employee” comes into play when organizations determine whether employees can be considered full-time under the Look-Back Measurement Method.
What is the Look-Back Measurement Method
The Look-Back Measurement Method is a technique used to determine whether employees can be classified as full-time for the purpose of offering healthcare coverage under the ACA. It provides a means to establish stability periods and measurement periods for determining full-time status, which include:
- A measurement period—a defined period generally ranging from 3-12 months during which an employee’s hours of service are tracked
- A standard measurement period—the specific timeframe used
- An initial measurement period—a timeframe used to determine whether new employees will be classified as full-time
- An administrative period—a period of up to 90 days allowing employers to handle administrative tasks like enrolling employees in healthcare coverage
- A stability period—the period where employers must offer healthcare coverage to eligible employees
The Look-Back Measurement Method is designed to provide employers with greater confidence in providing healthcare coverage by using past hours for determining full-time status.
The Stakes are High
The treatment of seasonal workers and employees can be easily overlooked by ALEs, but the stakes are high. When employers are deemed to be ALEs they are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time staff, and their dependents. Coverage must meet Minimum Value (MV) and must be affordable for the employee or subject to IRC Section 4980H penalties.
These penalties are increasing in 2023. In 2023 the penalty, also referred to as “the hammer penalty,” is $240—or $2880/employee when annualized. Penalties are issued in Letter 226J penalty notices.
Employers Need to Be Proactive
It’s important for employers to be proactive to avoid running the risk of incurring penalties by regularly monitoring the hours and days worked by seasonal workers and seasonal employees. ACA best practice compliance suggests incorporating a monthly process.
If you’re unsure of how to classify your seasonal employee and workers, we recommend getting your ACA Vitals score to understand how it may impact your compliance efforts and subsequently reveal your chances of receiving a notice from the IRS.
