Unfortunately, we’ve heard firsthand from many organizations 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. 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.” Below we make clear the difference between the two.
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 workers 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 would not be considered an ALE if its workforce exceeds 50 full-time employees, including full-time equivalent employees, for 120 days or fewer during the preceding calendar year, and all of the employees in excess of 50 were employed during that period of no more than 120 days were seasonal workers.
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 is an employee 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. Another example would be a lifeguard at the local pool. These types of jobs are only designed to be filled for a portion of the year.
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 Letter 226J penalty notices.
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 is now issuing for the 2019 tax year.
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.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.