Handling Seasonal Employees and Workers is Critical for ACA Compliance
3 minute read:
Unfortunately, we’ve heard first hand from many of our clients that their Affordable Care Act compliance responsibilities tend to slip during the summer months following the push to submit annual ACA information filings to the IRS.
The reality is that the summer is a very critical time for the health of your ACA compliance, largely due to the high volume of seasonal workers and employees that many businesses process during the summer. Determining whether or not your seasonal workers or employees fall into the full-time equivalency category can be a difficult one. In order to account for your seasonal workers and employees, no matter what season it may be, it’s important to understand how the IRS treats them. Neglecting to do so could result in significant ACA penalty assessments from the IRS.
It’s important to recognize that the IRS has specific definitions of what makes someone a “seasonal worker” or a “seasonal employee.”
Seasonal Workers
A “seasonal worker” is someone who performs labor or services on a seasonal basis as defined in certain U.S. Department of Labor regulations. This category of worker includes agricultural laborers and retail workers employed exclusively during holiday seasons.
The IRS considers seasonal workers when determining whether or not an organization is an Applicable Large Employer or ALE. An ALE is an employer whose workforce exceeds 50 full-time employees, including full-time equivalent employees (employees who work 130 hours a month). An employer is not considered an ALE if the employer’s workforce exceeds 50 full-time employees, including full-time equivalent employees (employees who work 130 hours a month), for 120 days or fewer during the preceding calendar year, and all of the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers.
Seasonal Employees
The IRS states that the term “seasonal employee” applies when determining if someone is a full-time employee under the Look-Back Measurement Method. For this purpose, a seasonal employee means an employee who is hired into a position for which the customary annual employment is six months or less and for which the period of employment begins each calendar year in approximately the same part of the year, such as summer or winter. The IRS provides the ski instructor as an example of a seasonal employee.
The treatment of seasonal workers and employees is one of those items that can easily be overlooked by ALEs. The stakes are high. If an organization is determined to be an ALE, the organization is required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is affordable for the employee or be subject to IRC Section 4980H penalties. These penalties are issued in an IRS Letter 226J penalty notice.
Employers, make the most of your summer by keeping up with your ACA compliance activities by regularly monitoring the hours and days worked for your seasonal workers and seasonal employees. Best practices for ACA compliance suggest incorporating a monthly process.
Failure to do so may result in your organization receiving a Letter 226J, which the IRS has now issuing for the 2017 tax year. Has your organization received one? Click here to learn how to respond.
To learn more about ACA compliance for the 2019 tax year, click here.
For ACA reporting deadlines in 2020 for the 2019 tax year, organizations should review this link for important dates and requirements.
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