Microsoft Word - 4980H FT-PT _Final Clearance

Determining Full-Time Employees for Purposes of Shared Responsibility for Employers

Regarding Health Coverage (§ 4980H)

Notice 2012-58

I. PURPOSE AND OVERVIEW

This notice describes safe harbor methods that employers may use (but are not

required to use) to determine which employees are treated as full-time employees for

purposes of the shared employer responsibility provisions of § 4980H of the Internal

Revenue Code (Code). Specifically, the administrative guidance in this notice,

modifying and expanding on previous guidance, includes a safe harbor method that

employers may apply to specified newly-hired employees.

As described more fully below, this notice –

• Expands the safe harbor method described in a previous notice to provide

employers the option to use a look-back measurement period of up to 12 months

to determine whether new variable hour employees or seasonal employees are

full-time employees, without being subject to a payment under § 4980H for this

period with respect to those employees. An employee is a variable hour

employee if, based on the facts and circumstances at the date the employee

begins providing services to the employer (the start date), it cannot be

determined that the employee is reasonably expected to work on average at

least 30 hours per week. (The 30 hours per week average reflects the statutory

definition of full-time employee in § 4980H(c)(4) and is the definition of “full-time

employee” as used in this notice.) Seasonal employee is defined in section

III.D.5, below.

• Provides employers the option to use specified administrative periods (in

conjunction with specified measurement periods) for ongoing employees (as

defined in section III.A, below) and certain newly hired employees;

• Facilitates a transition for new employees from the determination method the

employer chooses to use for them to the determination method the employer

chooses to use for ongoing employees; and

• Provides employers reliance, at least through the end of 2014, on the guidance

contained in this notice and on the following approaches described in prior

notices:

(1) for ongoing employees, an employer will be permitted to use

measurement and stability periods of up to 12 months;

(2) for new employees who are reasonably expected to work full-time, an

employer that maintains a group health plan that meets certain requirements

will not be subject to an assessable payment under § 4980H for failing to offer

coverage to the employee for the initial three months of employment; and

(3) for all employees, an employer will not be subject to an assessable

payment under § 4980H(b) for an employee if the coverage offered to that

employee was affordable based on the employee’s Form W-2 wages reported

in Box 1 (often referred to as the affordability safe harbor).

This guidance is intended to encourage employers to continue providing and

potentially to expand group health plan coverage for their employees by permitting

employers to adopt reasonable procedures to determine which employees are full-time

employees without becoming liable for a payment under § 4980H, to protect employees

from unnecessary cost, confusion, and disruption of coverage, and to minimize

administrative burdens on the Affordable Insurance Exchanges (Exchanges).

Simultaneously with the issuance of this notice, the Department of the Treasury,

the Department of Labor (DOL), and the Department of Health and Human Services

(HHS) (the Departments) are jointly providing administrative guidance under § 2708 of

the Public Health Service Act (PHS Act).

PHS Act § 2708 applies to group health

plans and group health insurance issuers and provides that any waiting period under a

group health plan must not exceed 90 days. To clarify how the PHS Act § 2708 90-day

waiting period limitation coordinates with § 4980H, this notice applies portions of the

Departments’ separate and simultaneous PHS Act § 2708 guidance. DOL and HHS

concur in the application of PHS Act § 2708 in this notice.

This notice consists of a background section briefly summarizing the § 4980H

and PHS Act § 2708 statutory framework and the administrative guidance issued to

date (section II); a description of the safe harbors available for employers for

determining full-time employee status in the case of ongoing employees and newly-

hired variable hour and seasonal employees (including the transition from newly-hired to

ongoing employees and a series of examples illustrating how the safe harbors apply)

(section III); a description of the reliance provided to employers through at least 2014

(section IV); and a request for comments (section V).

II. BACKGROUND

A. Section 4980H

Section 4980H was added to the Code by § 1513 of the Patient Protection and

Affordable Care Act (Affordable Care Act) (enacted March 23, 2010, Pub. L. No. 111-

148) and amended by § 1003 of the Health Care and Education Reconciliation Act of

Notice 2012-59, DOL Technical Release 2012-02 and HHS Bulletin titled Guidance on 90-Day Waiting

Period Limitation under Public Health Service Act § 2708.

2010 (enacted March 30, 2010, Pub. L. No. 111-152).

Section 4980H applies to

“applicable large employers” (generally, employers who employed at least 50 full-time

employees, including full-time equivalent employees, on business days during the

preceding calendar year).

Generally, § 4980H provides that an applicable large employer is subject to an

assessable payment if either (1) the employer fails to offer to its full-time employees

(and their dependents) the opportunity to enroll in minimum essential coverage

under

an eligible employer-sponsored plan and any full-time employee is certified to receive a

premium tax credit or cost-sharing reduction (§ 4980H(a)), or (2) the employer offers its

full-time employees (and their dependents) the opportunity to enroll in minimum

essential coverage and one or more full-time employees is certified to receive a

premium tax credit or cost-sharing reduction (generally because the employer’s

coverage either is not affordable within the meaning of § 36B(c)(2)(C)(i) or does not

provide minimum value within the meaning of § 36B(c)(2)(C)(ii)) (§ 4980H(b)). Under

§ 36B(c)(2)(C)(i), coverage under an employer-sponsored plan is affordable to a

particular employee if the employee’s required contribution (within the meaning of

§ 5000A(e)(1)(B)) to the plan does not exceed 9.5 percent of the employee’s household

income for the taxable year. Section 4980H(c)(4) provides that a full-time employee

with respect to any month is an employee who is employed on average at least 30

hours of service per week.

B. PHS Act Section 2708

PHS Act § 2708

provides that, for plan years beginning on or after January 1,

2014, a group health plan or group health insurance issuer shall not apply any waiting

period that exceeds 90 days. PHS Act § 2704(b)(4), ERISA § 701(b)(4), and Code

§ 9801(b)(4) define a waiting period to be the period that must pass with respect to an

individual before the individual is eligible to be covered for benefits under the terms of

Section 4980H was further amended by section 1858(b)(4) of the Department of Defense and Full-Year

Continuing Appropriations Act, 2011 (enacted April 15, 2011, Pub. L. No. 112-10), effective for months

beginning after December 31, 2013.

Minimum essential coverage is defined in § 5000A(f) of the Code. The definition of “eligible employer-

sponsored plan” in § 5000A(f)(2) applies for purposes of § 4980H.

For this purpose, proposed regulations are expected to provide (as stated in Notice 2011-36) that 130

hours of service in a calendar month would be treated as the monthly equivalent of 30 hours of service

per week.

The Affordable Care Act adds section 715(a)(1) to the Employee Retirement Income Security Act

(ERISA) and section 9815(a)(1) to the Code to incorporate the provisions of part A of title XXVII of the

PHS Act into ERISA and the Code, and to make them applicable to group health plans and health

insurance issuers providing health insurance coverage in connection with group health plans. The PHS

Act sections incorporated by these references are sections 2701 through 2728. Accordingly, PHS Act

§ 2708 is subject to shared interpretive jurisdiction by DOL, HHS, and Treasury.

the plan. In 2004 regulations,

the Departments defined a waiting period to mean the

period that must pass before coverage for an employee or dependent who is otherwise

eligible to enroll under the terms of a group health plan can become effective.

C. Notice 2011-36

Public comments were requested and received on a number of issues and

potential approaches to interpreting and applying § 4980H and PHS Act § 2708. In

particular, Notice 2011-36 (2011-21 I.R.B. 792) described and requested comments on

a possible approach that would permit employers to use an optional “look-back/stability

period safe harbor” to determine whether ongoing (rather than newly-hired) employees

are full-time employees for purposes of § 4980H. The use of this safe harbor approach

would be voluntary.

Under the look-back/stability period safe harbor method, an employer would

determine each employee’s full-time status by looking back at a defined period of not

less than three but not more than 12 consecutive calendar months, as chosen by the

employer (the measurement period), to determine whether during the measurement

period the employee averaged at least 30 hours of service per week. If the employee

were determined to be a full-time employee during the measurement period, then the

employee would be treated as a full-time employee during a subsequent “stability

period,” regardless of the employee’s number of hours of service during the stability

period, so long as he or she remained an employee. For an employee determined to be

a full-time employee during the measurement period, the stability period would be a

period of at least six consecutive calendar months that follows the measurement period

and is no shorter in duration than the measurement period. If the employee were

determined not to be a full-time employee during the measurement period, the employer

would be permitted to treat the employee as not a full-time employee during a stability

period that followed the measurement period, but the stability period could not exceed

the measurement period. Comments on this approach were favorable.

D. Notice 2011-73

In Notice 2011-73 (2011-40 I.R.B. 474), Treasury and the IRS described a safe

harbor under which employers would not be subject to an assessable payment under

§ 4980H(b) with respect to an employee if the coverage offered to that employee was

affordable based on the employee’s Form W-2 wages (as reported in Box 1) instead of

household income. Under the safe harbor, an employer would not be subject to a

penalty under § 4980H(b) with respect to an employee if the required contribution for

that employee was no more than 9.5 percent of the employee’s Form W-2 wages. The

proposed affordability safe harbor would apply only for purposes of determining whether

an employer is subject to the assessable payment under § 4980H(b). For example, the

26 CFR 54.9801-3(a)(3)(iii), 29 CFR 2590.701-3(a)(3)(iii), 45 CFR 146.111(a)(3)(iii).

safe harbor would not affect an employee’s eligibility for a premium tax credit under

§ 36B. Treasury and the IRS requested and received comments on the safe harbor,

and the comments were generally favorable. Subsequently, Notice 2012-17 (2012-9

I.R.B. 430)

stated that, as described in Notice 2011-73, Treasury and the IRS intend to

issue proposed regulations or other guidance permitting employers to use an

employee’s Form W-2 wages (as reported in Box 1) as a safe harbor in determining the

affordability of employer coverage.

E. Notice 2012-17

Notice 2012-17 also described and requested comments on a potential approach

for determining the full-time status of new employees for purposes of § 4980H if, based

on the facts and circumstances at the start date, it cannot reasonably be determined

whether the new employee is expected to work full-time because the employee’s hours

are variable or otherwise uncertain. Under the potential approach described in Notice

2012-17, employers would be given three months or, in certain cases, six months,

without incurring a payment under § 4980H, to determine whether a variable hour new

employee is a full-time employee.

In response to Notice 2012-17, commenters requested that employers be

allowed to use a look-back measurement period of up to 12 months to determine the

status of new variable hour employees, similar to the method permitted to determine the

status of ongoing employees.

F. Revised Approach in This Notice

After considering the comments, Treasury and the IRS are revising the approach

outlined in Notice 2012-17 for new variable hour employees. Treasury and the IRS

anticipate that the revised approach, which is generally similar to the approach for

ongoing employees, will be a flexible and workable option for determining the full-time

status of new variable hour employees, and will provide employees and employers with

greater stability and predictability. Treasury and the IRS also are providing a similar

safe harbor for certain seasonal employees and are modifying the rule for ongoing

employees to provide greater flexibility by allowing use of an administrative period,

described below, between the measurement and stability periods. This revised

guidance is described in section III, below.

Note that unless specified otherwise, all references in this notice to an offer of

coverage to an employee refer to an offer of minimum essential coverage that is

affordable within the meaning of § 36B(c)(2)(C)(i) (or is treated as affordable coverage

under the Form W-2 safe harbor described in section II.D of this notice) and that

provides minimum value within the meaning of § 36B(c)(2)(C)(ii). Also, whenever this

Simultaneously with the issuance of Notice 2012-17, DOL and HHS issued parallel guidance. See DOL

Technical Release 2012-01 and HHS FAQs issued February 9, 2012.

notice states that coverage must be offered to an employee by a specified date, it

means that the offer that must be made to the employee, if accepted by the employee,

would result in the employee actually receiving coverage that is effective as of the

specified date. Absent such an offer, the employer may be subject to an assessable

payment under § 4980H. In addition, unless otherwise specified below, solely for the

purpose of the guidance in this notice, the term “calendar month” means one of the full

months named in the calendar (such as January, February or March), and the term

“month” means the period from a day in one month to the prior day of the following

month (such as from January 15 to February 14).

III. DETERMINING FULL-TIME STATUS OF EMPLOYEES

A. Ongoing Employees: Safe Harbor

For ongoing employees, employers generally will be permitted to use the safe

harbor method based upon measurement and stability periods described in Notices

2011-36 and 2012-17. The measurement period the employer chooses to apply to

ongoing employees is referred to in this notice as the “standard measurement period.”

An “ongoing employee” is generally an employee who has been employed by the

employer for at least one complete standard measurement period. As stated in Notice

2011-36, different rules may apply to employees who move into full-time status during

the year. Additional rules regarding the treatment of employees who experience a

change in employment status are expected to be included in upcoming regulations.

Under the safe harbor method for ongoing employees, an employer determines

each ongoing employee’s full-time status by looking back at the standard measurement

period (a defined time period of not less than three but not more than 12 consecutive

calendar months, as chosen by the employer). The employer has the flexibility to

determine the months in which the standard measurement period starts and ends,

provided that the determination must be made on a uniform and consistent basis for all

employees in the same category. (See below in this section for permissible categories.)

For example, if an employer chose a standard measurement period of 12 months, the

employer could choose to make it the calendar year, a non-calendar plan year, or a

different 12-month period, such as one that ends shortly before the start of the plan’s

annual open enrollment season. If the employer determines that an employee

averaged at least 30 hours per week during the standard measurement period, then the

employer treats the employee as a full-time employee during a subsequent “stability

period”, regardless of the employee’s number of hours of service during the stability

period, so long as he or she remained an employee.

For an employee whom the employer determines to be a full-time employee

during the standard measurement period, the stability period would be a period of at

least six consecutive calendar months that is no shorter in duration than the standard

measurement period and that begins after the standard measurement period (and any

applicable administrative period, as discussed in section III.B, below). If the employer

determines that the employee did not work full-time during the standard measurement

period, the employer would be permitted to treat the employee as not a full-time

employee during the stability period that follows, but is not longer than, the standard

measurement period.

Subject to the rules governing the relationship between the length of the

measurement period and the stability period, employers may use measurement periods

and stability periods that differ either in length or in their starting and ending dates for

the following categories of employees: (1) collectively bargained employees and non-

collectively bargained employees; (2) salaried employees and hourly employees; (3)

employees of different entities; and (4) employees located in different States. (These

categories are adapted from existing regulatory guidance and also reflect public

comments received in response to Notice 2011-36.) The rules described in this

paragraph apply both to the standard measurement periods described in this section

III.A and the initial measurement periods described below in section III.D.

B. Ongoing Employees: Option to Use Administrative Period Under Safe

Harbor

Because employers may need time between the standard measurement period

and the associated stability period to determine which ongoing employees are eligible

for coverage, and to notify and enroll employees, an employer may make time for these

administrative steps by having its standard measurement period end before the

associated stability period begins. However, any administrative period between the

standard measurement period and the stability period may neither reduce nor lengthen

the measurement period or the stability period. The administrative period following the

standard measurement period may last up to 90 days. To prevent this administrative

period from creating any potential gaps in coverage, it will overlap with the prior stability

period, so that, during any such administrative period applicable to ongoing employees

following a standard measurement period, ongoing employees who are eligible for

coverage because of their status as full-time employees based on a prior measurement

period would continue to be offered coverage.

Example

Facts

. Employer W chooses to use a 12-month stability period that begins

January 1 and a 12-month standard measurement period that begins October 15.

Consistent with the terms of Employer W’s group health plan, only an ongoing

employee who works full-time (an average of at least 30 hours per week) during the

standard measurement period is offered coverage during the stability period associated

with that measurement period. Employer W chooses to use an administrative period

between the end of the standard measurement period (October 14) and the beginning

of the stability period (January 1) to determine which employees worked full-time during

the measurement period, notify them of their eligibility for the plan for the calendar year

beginning on January 1 and of the coverage available under the plan, answer questions

and collect materials from employees, and enroll those employees who elect coverage

in the plan. Previously-determined full-time employees already enrolled in coverage

continue to be offered coverage through the administrative period.

Employee A and Employee B have been employed by Employer W for several

years, continuously from their start date. Employee A worked full-time during the

standard measurement period that begins October 15 of Year 1 and ends October 14 of

Year 2 and for all prior standard measurement periods. Employee B also worked full-

time for all prior standard measurement periods, but is not a full-time employee during

the standard measurement period that begins October 15 of Year 1 and ends October

14 of Year 2.

Conclusions. Because Employee A was employed for the entire standard

measurement period that begins October 15 of Year 1 and ends October 14 of Year 2,

Employee A is an ongoing employee with respect to the stability period running from

January 1 through December 31 of Year 3. Because Employee A worked full-time

during that standard measurement period, Employee A must be offered coverage for

the entire Year 3 stability period (including the administrative period from October 15

through December 31 of Year 3). Because Employee A worked full-time during the

prior standard measurement period, Employee A would have been offered coverage for

the entire Year 2 stability period, and if enrolled would continue such coverage during

the administrative period from October 15 through December 31 of Year 2.

Because Employee B was employed for the entire standard measurement period

that begins October 15 of Year 1 and ends October 14 of Year 2, Employee B is also an

ongoing employee with respect to the stability period in Year 3. Because Employee B

did not work full-time during this standard measurement period, Employee B is not

required to be offered coverage for the stability period in Year 3 (including the

administrative period from October 15 through December 31 of Year 3). However,

because Employee B worked full-time during the prior standard measurement period,

Employee B would be offered coverage through the end of the Year 2 stability period,

and if enrolled would continue such coverage during the administrative period from

October 15 through December 31 of Year 2.

Employer W complies with the standards of this section because the

measurement and stability periods are no longer than 12 months, the stability period for

ongoing employees who work full-time during the standard measurement period is not

shorter than the standard measurement period, the stability period for ongoing

employees who do not work full-time during the standard measurement period is no

longer than the standard measurement period, and the administrative period is no

longer than 90 days.

C. New Employees: Reasonably Expected to Work Full-Time

If an employee is reasonably expected at his or her start date to work full-time,

an employer that sponsors a group health plan that offers coverage to the employee at

or before the conclusion of the employee’s initial three calendar months of employment

will not be subject to the employer responsibility payment under § 4980H by reason of

its failure to offer coverage to the employee for up to the initial three calendar months of

employment. For rules on compliance with the 90-day waiting period limitation under

PHS Act § 2708, see the guidance cited at footnote 1.

D. New Employees: Safe Harbor for Variable Hour and Seasonal

Employees

If an employer maintains a group health plan that would offer coverage to the

employee only if the employee were determined to be a full-time employee, the

employer may use both a measurement period of between three and 12 months (the

same as allowed for ongoing employees) and an administrative period of up to 90 days

for variable hour and seasonal employees. However, the measurement period and the

administrative period combined may not extend beyond the last day of the first calendar

month beginning on or after the one-year anniversary of the employee’s start date

(totaling, at most, 13 months and a fraction of a month). These periods are described in

greater detail below.

1. Initial Measurement Period and Associated Stability Period

For variable hour and seasonal employees, employers are permitted to

determine whether the new employee is a full-time employee using an “initial

measurement period” of between three and 12 months (as selected by the employer).

The employer measures the hours of service completed by the new employee during

the initial measurement period and determines whether the employee completed an

average of 30 hours of service per week or more during this period. The stability period

for such employees must be the same length as the stability period for ongoing

employees. As in the case of a standard measurement period, if an employee is

determined to be a full-time employee during the initial measurement period, the

stability period must be a period of at least six consecutive calendar months that is no

shorter in duration than the initial measurement period and that begins after the initial

measurement period (and any associated administrative period).

If a new variable hour or seasonal employee is determined not to be a full-time

employee during the initial measurement period, the employer is permitted to treat the

employee as not a full-time employee during the stability period that follows the initial

measurement period. This stability period for such employees must not be more than

one month longer than the initial measurement period and, as explained below, must

not exceed the remainder of the standard measurement period (plus any associated

administrative period) in which the initial measurement period ends.

In these circumstances, allowing a stability period to exceed the initial measurement period by one

month is intended to give additional flexibility to employers that wish to use a 12-month stability period for

new variable hour and seasonal employees and an administrative period that exceeds one month. To

that end, such an employer could use an 11-month initial measurement period (in lieu of the 12-month

An employee or related individual is not considered eligible for minimum

essential coverage under the plan (and therefore may be eligible for a premium tax

credit or cost-sharing reduction through an Exchange) during any period when coverage

is not offered, including any measurement period or administrative period prior to when

coverage takes effect.

2. Transition from New Employee Rules to Ongoing Employee Rules

Once a new employee, who has been employed for an initial measurement

period, has been employed for an entire standard measurement period, the employee

must be tested for full-time status, beginning with that standard measurement period, at

the same time and under the same conditions as other ongoing employees.

Accordingly, for example, an employer with a calendar year standard measurement

period that also uses a one-year initial measurement period beginning on the

employee’s start date would test a new variable hour employee whose start date is

February 12 for full-time status first based on the initial measurement period (February

12 through February 11 of the following year) and again based on the calendar year

standard measurement period (if the employee continues in employment for that entire

standard measurement period) beginning on January 1 of the year after the start date.

An employee determined to be a full-time employee during an initial

measurement period or standard measurement period must be treated as a full-time

employee for the entire associated stability period. This is the case even if the

employee is determined to be a full-time employee during the initial measurement

period but determined not to be a full-time employee during the overlapping or

immediately following standard measurement period. In that case, the employer may

treat the employee as not a full-time employee only after the end of the stability period

associated with the initial measurement period. Thereafter, the employee’s full-time

status would be determined in the same manner as that of the employer’s other ongoing

employees.

In contrast, if the employee is determined not to be a full-time employee during

the initial measurement period, but is determined to be a full-time employee during the

overlapping or immediately following standard measurement period, the employee must

be treated as a full-time employee for the entire stability period that corresponds to that

standard measurement period (even if that stability period begins before the end of the

stability period associated with the initial measurement period). Thereafter, the

employee’s full-time status would be determined in the same manner as that of the

employer’s other ongoing employees.

3. Optional Administrative Period for New Employees

initial measurement period that would otherwise be required) and still comply with the general rule that

the initial measurement period and administrative period combined may not extend beyond the last day of

the first calendar month beginning on or after the one-year anniversary of the employee’s start date.

In addition to the initial measurement period, the employer is permitted to apply

an administrative period before the start of the stability period. This administrative

period must not exceed 90 days in total. For this purpose, the administrative period

includes all periods between the start date of a new variable hour or seasonal employee

and the date the employee is first offered coverage under the employer’s group health

plan, other than the initial measurement period. Thus, for example, if the employer

begins the initial measurement period on the first day of the first month following a new

variable hour or seasonal employee’s start date, the period between the employee’s

start date and the first day of the next month must be taken into account in applying the

90-day limit on the administrative period. Similarly, if there is a period between the end

of the initial measurement period and the date the employee is first offered coverage

under the plan, that period must be taken into account in applying the 90-day limit on

the administrative period.

In addition to the specific limits on the initial measurement period (which must not

exceed 12 months) and the administrative period (which must not exceed 90 days),

there is a limit on the combined length of the initial measurement period and the

administrative period applicable for a new variable hour or seasonal employee.

Specifically, the initial measurement period and administrative period together cannot

extend beyond the last day of the first calendar month beginning on or after the first

anniversary of the employee’s start date. For example, if an employer uses a 12-month

initial measurement period for a new variable hour employee, and begins that initial

measurement period on the first day of the first calendar month following the

employee’s start date, the period between the end of the initial measurement period and

the offer of coverage to a new variable hour employee who works full time during the

initial measurement period must not exceed one month.

4. Variable Hour Employee Defined

For purposes of this notice, a new employee is a variable hour employee if,

based on the facts and circumstances at the start date, it cannot be determined that the

employee is reasonably expected to work on average at least 30 hours per week. A

new employee who is expected to work initially at least 30 hours per week may be a

variable hour employee if, based on the facts and circumstances at the start date, the

period of employment at more than 30 hours per week is reasonably expected to be of

limited duration and it cannot be determined that the employee is reasonably expected

to work on average at least 30 hours per week over the initial measurement period. As

one example, a variable hour employee would include a retail worker hired at more than

30 hours per week for the holiday season who is reasonably expected to continue

working after the holiday season but is not reasonably expected to work at least 30

hours per week for the portion of the initial measurement period remaining after the

holiday season, so that it cannot be determined at the start date that the employee is

reasonably expected to average at least 30 hours per week during the initial

measurement period.

5. Seasonal Employee Defined

The Affordable Care Act addresses the meaning of seasonal worker in the

context of whether an employer meets the definition of an applicable large employer.

Specifically, § 4980H(c)(2)(B) generally provides that if an employer’s workforce

exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the

employees in excess of 50 who were employed during that period of no more than 120

days were seasonal employees, the employer would not be an applicable large

employer. Furthermore, § 4980H(c)(2)(B)(ii) provides that, for this purpose, seasonal

worker means a worker who performs labor or services on a seasonal basis, as defined

by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR

500.20(s)(1) and retail workers employed exclusively during holiday seasons. The

statute does not address how the term “seasonal employee” might be defined for

purposes other than the determination of applicable large employer status, such as the

determination of whether a new employee of an applicable large employer is reasonably

expected to work full time for purposes of determining the amount of any assessable

payment under § 4980H. Through at least 2014, employers are permitted to use a

reasonable, good faith interpretation of the term “seasonal employee” for purposes of

this notice.

E. Examples

The examples that follow illustrate how the safe harbors described above apply

to variable hour employees and seasonal employees. For the rules that apply to full-

time new employees, see section III.C, above. For rules that apply to part-time new

employees, see section IV, example 5, of the notice (issued concurrently with this

notice) interpreting PHS Act § 2708.

In all of the following examples, the coverage offer is an offer of minimum

essential coverage that is affordable within the meaning of § 36B(c)(2)(C)(i) (or is

treated as affordable coverage under the Form W-2 safe harbor described in section

II.D of this notice) and that provides minimum value within the meaning of

§ 36B(c)(2)(C)(ii).

1. Examples of New Variable Hour Employees with an Administrative

Period.

In Examples 1 through 8, the new employee is a new variable hour employee,

and the employer has chosen to use a 12-month standard measurement period for

ongoing employees starting October 15 and a 12-month stability period associated with

that standard measurement period starting January 1. (Thus, during the administrative

period from October 15 through December 31 of each calendar year, the employer

continues to offer coverage to employees who qualified for coverage for that entire

calendar year based upon working on average at least 30 hours per week during the

prior standard measurement period.) Also, the employer offers health plan coverage

only to full-time employees (and their dependents).

Example 1 (12-Month Initial Measurement Period Followed by 1+ Partial Month

Administrative Period). (i) Facts. For new variable hour employees, Employer B uses a

12-month initial measurement period that begins on the start date and applies an

administrative period from the end of the initial measurement period through the end of

the first calendar month beginning on or after the end of the initial measurement period.

Employer B hires Employee Y on May 10, 2014. Employee Y’s initial measurement

period runs from May 10, 2014, through May 9, 2015. Employee Y works an average of

30 hours per week during this initial measurement period. Employer B offers coverage

to Employee Y for a stability period that runs from July 1, 2015 through June 30, 2016.

(ii) Conclusion. Employee Y works an average of 30 hours per week during his

initial measurement period and Employer B uses (1) an initial measurement period that

does not exceed 12 months; (2) an administrative period totaling not more than 90 days;

and (3) a combined initial measurement period and administrative period that does not

last beyond the final day of the first calendar month beginning on or after the one-year

anniversary of Employee Y’s start date. Accordingly, from Employee Y’s start date

through June 30, 2016, Employer B is not subject to any payment under § 4980H with

respect to Employee Y, because Employer B complies with the standards for the initial

measurement period and stability periods for a new variable hour employee. Employer

B also complies with PHS Act § 2708. Employer B must test Employee Y again based

on the period from October 15, 2014 through October 14, 2015 (Employer B’s first

standard measurement period that begins after Employee Y’s start date).

Example 2 (11-Month Initial Measurement Period Followed by 2 + Partial Month

Administrative Period). (i) Facts. Same as Example 1, except that Employer B uses an

11-month initial measurement period that begins on the start date and applies an

administrative period from the end of the initial measurement period until the end of the

second calendar month beginning after the end of the initial measurement period.

Employer B hires Employee Y on May 10, 2014. Employee Y’s initial measurement

period runs from May 10, 2014, through April 9, 2015. Employee Y works an average of

30 hours per week during this initial measurement period. Employer B offers coverage

to Employee Y for a stability period that runs from July 1, 2015 through June 30, 2016.

(ii) Conclusion

. Same as Example 1.

Example 3 (11-Month Initial Measurement Period Preceded by Partial Month

Administrative Period and Followed by 2-Month Administrative Period) . (i) Facts.

Same as Example 1, except that Employer B uses an 11-month initial measurement

period that begins on the first day of the first calendar month beginning after the start

date and applies an administrative period that runs from the end of the initial

measurement period through the end of the second calendar month beginning on or

after the end of the initial measurement period. Employer B hires Employee Y on May

10, 2014. Employee Y’s initial measurement period runs from June 1, 2014, through

April 30, 2015. Employee Y works an average of 30 hours per week during this initial

measurement period. Employer B offers coverage to Employee Y for a stability period

that runs from July 1, 2015 through June 30, 2016.

(ii) Conclusion. Same as Example 1.

Example 4 (12-Month Initial Measurement Period Preceded by Partial Month

Administrative Period and Followed by 2-Month Administrative Period). (i) Facts. For

new variable hour employees, Employer B uses a 12-month initial measurement period

that begins on the first day of the first month following the start date and applies an

administrative period that runs from the end of the initial measurement period through

the end of the second calendar month beginning on or after the end of the initial

measurement period. Employer B hires Employee Y on May 10, 2014. Employee Y’s

initial measurement period runs from June 1, 2014, through May 31, 2015. Employee Y

works an average of 30 hours per week during this initial measurement period.

Employer B offers coverage to Employee Y for a stability period that runs from August

1, 2015 through July 31, 2016.

(ii) Conclusion. Employer B does not satisfy the standards for the safe harbor

method in section III.D because the combination of the initial partial month delay, the

twelve-month initial measurement period, and the two month administrative period

means that the coverage offered to Employee Y does not become effective until after

the first day of the second calendar month following the first anniversary of Employee

Y’s start date. Accordingly, Employer B is potentially subject to a payment under

§ 4980H and fails to comply with PHS Act § 2708.

Example 5 (Continuous Full-Time Employee). (i) Facts. Same as Example 1; in

addition, Employer B tests Employee Y again based on Employee Y’s hours from

October 15, 2014 through October 14, 2015 (Employer B’s first standard measurement

period that begins after Employee Y’s start date), determines that Employee Y worked

an average of 30 hours a week during that period, and offers Employee Y coverage for

July 1, 2016 through December 31, 2016. (Employee Y already has an offer of

coverage for the period of January 1, 2016 through June 30, 2016 because that period

is covered by the initial stability period following the initial measurement period, during

which Employee Y was determined to be a full-time employee.)

(ii) Conclusion. Employer B is not subject to any payment under § 4980H and

complies with PHS Act § 2708 for 2016 with respect to Employee Y.

Example 6 (Initially Full-Time Employee, Becomes Non-Full-Time Employee)

. (i)

Facts

. Same as Example 1; in addition, Employer B tests Employee Y again based on

Employee Y’s hours from October 15, 2014 through October 14, 2015 (Employer B’s

first standard measurement period that begins after Employee Y’s start date), and

determines that Employee Y worked an average of 28 hours a week during that period.

Employer B continues to offer coverage to Employee Y through June 30, 2016 (the end

of the stability period based on the initial measurement period during which Employee Y

was determined to be a full-time employee), but does not offer coverage to Employee Y

for the period of July 1, 2016 through December 31, 2016.

(ii) Conclusion. Employer B is not subject to any payment under § 4980H and

complies with PHS Act § 2708 for 2016 with respect to Employee Y, provided that it

offers coverage to Employee Y from July 1, 2015 through June 30, 2016 (the entire

stability period associated with the initial measurement period).

Example 7 (Initially Non-Full-Time Employee). (i) Facts. Same as Example 1,

except that Employee Y works an average of 28 hours per week during the period from

May 10, 2014 through May 9, 2015 and Employer B does not offer coverage to

Employee Y in 2015. Employer B tests Employee Y again based on Employee Y’s

hours from October 15, 2014 through October 14, 2015 (Employer B’s first standard

measurement period that begins after Employee Y’s start date).

(ii) Conclusion. From Employee Y’s start date through the end of 2015,

Employer B is not subject to any payment under § 4980H, because Employer B

complies with the standards for the measurement and stability periods for a new

variable hour employee with respect to Employee Y. PHS Act § 2708 does not apply to

Employee Y during this period because, pursuant to the plan’s eligibility conditions,

Employee Y does not become eligible during this period for coverage under the plan.

Accordingly, Employer B also complies with PHS Act § 2708 with respect to Employee

Y during this period.

Example 8 (Initially Non-Full-Time Employee, Becomes Full-Time Employee). (i)

Facts. Same as Example 7; in addition, Employer B tests Employee Y again based on

Employee Y’s hours from October 15, 2014 through October 14, 2015 (Employer B’s

first standard measurement period that begins after Employee Y’s start date),

determines that Employee Y works an average of 30 hours per week during this

standard measurement period, and offers coverage to Employee Y for 2016.

(ii) Conclusion. Employer B is not subject to any payment under § 4980H and

complies with PHS Act § 2708 for 2016 with respect to Employee Y.

2. Examples of New Variable Hour Employees with an Administrative

Period and Six-Month Standard Measurement Period and Stability Period.

In Examples 9 and 10, the new employee is a new variable hour employee, and

the employer uses a six-month standard measurement period, starting each May 15

and November 15, with six-month stability periods associated with those standard

measurement periods starting January 1 and July 1.

Example 9

. (i) Facts. For new variable hour employees, Employer C uses a six-

month initial measurement period that begins on the start date and applies an

administrative period that runs from the end of the initial measurement period through

the end of the first full calendar month beginning after the end of the initial measurement

period. Employer C hires Employee Z on May 10, 2014. Employee Z’s initial

measurement period runs from May 10, 2014, through November 9, 2014, during which

Employee Z works an average of 30 hours per week. Employer C offers coverage to

Employee Z for a stability period that runs from January 1, 2015 through June 30, 2015

(ii) Conclusion. Employer C uses (1) an initial measurement period that does not

exceed 12 months; (2) an administrative period totaling not more than 90 days; and (3)

a combined initial measurement period and administrative period that does not last

longer than the final day of the first calendar month beginning on or after the one-year

anniversary of Employee Z’s start date. From Employee Z’s start date through June 30,

2015, Employer C is not subject to any payment under § 4980H, because Employer C

complies with the standards for the measurement and stability periods for a new

variable hour employee with respect to Employee Z. Employer C also complies with

PHS Act § 2708. Employer C must test Employee Z again based on Employee Z’s

hours during the period from November 15, 2014 through May 14, 2015 (Employer C’s

first standard measurement period that begins after Employee Z’s start date).

Example 10 (Initially Full-Time Employee, Becomes Non-Full-Time Employee).

(i) Facts. Same as Example 9; in addition, Employer C tests Employee Z again based

on Employee Z’s hours during the period from November 15, 2014 through May 14,

2015 (Employer C’s first standard measurement period that begins after Employee Z’s

start date), during which period Employee Z works an average of 28 hours per week.

Employer C continues to offer coverage to Employee Z through June 30, 2015 (the end

of the initial stability period based on the initial measurement period during which

Employer C worked an average of 30 hours per week), but does not offer coverage to

Employee Z from July 1, 2015 through December 31, 2015.

(ii) Conclusion. Employer C is not subject to any payment under § 4980H and

complies with PHS Act § 2708 with respect to Employee Z for 2015.

3. Example of Seasonal Employee

Example 11 (12-Month Initial Measurement Period; 1+ Partial Month

Administrative Period). (i) Facts. Employer D offers health plan coverage only to full-

time employees (and their dependents). Employer D uses a 12-month initial

measurement period for new variable hour employees and seasonal employees that

begins on the start date and applies an administrative period from the end of the initial

measurement period through the end of the first calendar month beginning after the end

of the initial measurement period. Employer D hires Employee S, a ski instructor, on

November 15, 2014 with an anticipated season during which Employee S will work

running through March 15, 2015. Employer D determines that Employee S is a seasonal

employee based upon a reasonable good faith interpretation of that term. Employee S’s

initial measurement period runs from November 15, 2014, through November 14, 2015.

Employee S works 60 hours per week from November 15, 2014 through March 15,

2015, but is not reasonably expected to average 30 hours per week for the 12-month

initial measurement period. Accordingly, Employer D does not treat Employee S as a

full-time employee, and does not offer Employee S coverage.

(ii) Conclusion. Employer D uses (1) an initial measurement period that does not

exceed 12 months; (2) an administrative period totaling not more than 90 days; and (3)

a combined initial measurement period and administrative period that does not extend

beyond the final day of the first calendar month that begins on or after the one-year

anniversary of an employee’s start date. Accordingly, from Employee S’s start date

through November 14, 2015, Employer D is not subject to any payment under § 4980H,

because Employer D complies with the standards for the initial measurement period and

stability periods for a new seasonal employee with respect to Employee S. PHS Act §

2708 does not apply to Employee S during this period because, pursuant to the plan’s

eligibility conditions, Employee S does not become eligible during this period for

coverage under the plan. Accordingly, Employer D also complies with PHS Act § 2708

with respect to Employee S during this period.

IV. RELIANCE

For compliance with § 4980H at least through the end of 2014, employers may

rely on (1) the safe harbor method for ongoing employees described in section III.A and

B, above; (2) the rule for new employees reasonably expected to work full-time

described in section III.C, above, (3) the safe harbor method for new variable hour and

seasonal employees described in section III.D, above, and (4) the safe harbor based on

Form W-2 wages described in Notice 2011-73 and Notice 2012-17. Employers will not

be required to comply with any subsequent guidance on these issues that is more

restrictive until at least January 1, 2015.

This reliance covers a measurement period that begins in 2013 or 2014 and the

associated stability period (which may extend into 2014, 2015 or 2016). For example,

the use of a 12-month measurement period in accordance with this notice beginning on

July 1, 2013 and ending on June 30, 2014 might be used to classify employees for a

stability period that runs from July 1, 2014 through June 30, 2015. In addition, as stated

earlier, use of any of the safe harbor methods described in this notice is not required,

but rather is optional for all employers.

V. PUBLIC COMMENTS

Treasury and the IRS intend that upcoming regulations on the employer shared

responsibility provisions under § 4980H will address the issues described in this notice,

including the specific issues identified below, in addition to other aspects of § 4980H.

As part of the efforts to develop workable and flexible rules on the application of §

4980H, with extensive input from stakeholders, Treasury and the IRS have issued

several notices describing potential approaches to interpreting § 4980H and requesting

public comments. In response, numerous helpful comments have been received and

reviewed. Those comments continue to be considered and taken into account in the

process of formulating regulations and other administrative guidance that stakeholders

will be able to rely on. Among the specific issues currently under consideration with

respect to the identification of full-time employees under § 4980H are the following:

(1) Whether and, if so, what types of safe harbor methods should be available to

employers for use in determining the full-time status of short-term assignment

employees, temporary staffing employees, employees hired into high-turnover positions,

and other categories of employees that may present special issues?

(2) Whether to develop additional guidance (such as relevant factors or safe

harbors) to assist employers and employees in determining, as of an employee’s start

date, whether the employee is reasonably expected to work an average of at least 30

hours per week, including whether the employee is a variable hour employee. If so,

what types of factors or safe harbors should apply for this purpose?

(3) What rules should be provided to address coordination of differing

measurement and stability periods during the transition following a merger or

acquisition?

(4) How the term “seasonal worker” should be defined under § 4980H, including:

(a) the practicability of using different definitions for different purposes (such as status

as an applicable large employer or, with respect to an applicable large employer, status

of a new employee as full-time); and (b) whether other, existing legal definitions should

be considered in defining a seasonal worker under § 4980H (such as the safe harbor for

seasonal employees in the final sentence of Treas. Reg. § 1.105-11(c)(2)(iii)(C)).

In view of the anticipated timing of regulations and other guidance that

stakeholders will be able to rely on, it is requested that those who wish to submit any

further comments on these or other issues relating to this notice do so by September

30, 2012. Comments should include a reference to Notice 2012-58. Send submissions

to CC:PA:LPD:PR (Notice 2012-58), Room 5203, Internal Revenue Service, P.O. Box

7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand

delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to

CC:PA:LPD:PR (Notice 2012-58), Courier’s Desk, Internal Revenue Service, 1111

Constitution Avenue, NW, Washington, DC 20044, or sent electronically, via the

following e-mail address: [email protected]. Please include

“Notice 2012-58” in the subject line of any electronic communication. All material

submitted will be available for public inspection and copying.

VI. NO INFERENCE

No inference should be drawn from any provision of this notice concerning any

other provision of § 4980H or any other provision of the Affordable Care Act.

VII. DRAFTING INFORMATION

The principal author of this notice is Mireille Khoury of the Office of Division

Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further

information regarding this notice contact Ms. Khoury at (202) 622-6080 (not a toll-free

call).