Higher Education: Counting the Hours of Adjunct Faculty Under the Affordable Care Act (Revised - March 6, 2013)
Colleges and universities are faced with difficult decisions on how to count the hours of adjunct faculty (“Adjuncts”) when determining whether they are “full-time employees” for purposes of the “employer mandate” provisions (also known as the “pay-or-play” or “employer shared responsibility” provisions) of the Patient Protection and Affordable Care Act (“Act”). Starting in 2014, the employer mandate provisions of the Act generally will require colleges and universities to offer at least 95 percent of their “full-time employees” (and eligible dependents of those employees) an opportunity to enroll in an affordable health plan that provides minimum essential coverage and also meets certain other requirements (“Affordable Health Plan”). If a college or university fails to satisfy this requirement, it could be exposed to potentially significant penalties.
For purposes of determining full-time employee status, a full-time employee generally means an employee who is actually employed on average at least 30 hours per week. Determining whether Adjuncts are actually employed on average at least 30 hours per week is proving to be a difficult task for colleges and universities. The United States Department of Treasury (“Treasury Department”) and the Internal Revenue Service (“IRS”) recently issued guidance on this issue, and that guidance is summarized below.
There have been numerous media reports about certain higher education institutions (e.g., Youngstown State University, Stark State College, the Community College of Allegheny County, and Palm Beach State College) imposing limits on the number of hours that Adjuncts can work in order to avoid having them be subject to the employer mandate. There are several issues a college or university should consider before taking such an action, and they are described below.
How Are “Hours of Service” Defined in the Proposed Regulations?
Proposed regulations that were recently issued by the Treasury Department and the IRS (“Proposed Regulations”) provide that “hours of service” generally include both: (1) hours paid for service; and (2) all hours for paid time off. Such hours are required to be determined in a manner that is consistent with the United States Department of Labor’s existing “hours of service” requirements that generally apply when making retirement plan eligibility and vesting determinations (those requirements can be found at 29 C.F.R. §2530.200b-2(a)). If an employee is paid on an hourly basis, each hour for which that employee is paid, or entitled to payment, must be counted. If an employee is not paid on an hourly basis, one of the following three “equivalency” methods (“Equivalency Methods”) must be used to determine that employee’s hours of service:
- Actual Hours Equivalency – The Actual Hours Equivalency is based on (1) an employee’s actual hours of service as determined from records of hours worked, and (2) hours for which payment is made or due to that employee.
- Days-Worked Equivalency – Under the Days-Worked Equivalency, an employee will be credited with eight hours of service for each day the employee would be required to be credited with at least one hour of service under the rules that apply to hourly employees.
- Weeks-Worked Equivalency – Under the Weeks-Worked Equivalency, an employee will be credited with 40 hours of service for each week for which the employee would be required to be credited with at least one hour of service under the rules that apply to hourly employees.
An employer is allowed to use different Equivalency Methods for different classifications of non-hourly employees, as long as the classifications are reasonable and consistently applied. The Equivalency Method used by an employer, however, generally must reflect the hours actually worked and the hours for which payment is made or due, and must not substantially understate an employee’s hours of service in a manner that would cause that employee not to be treated as full-time (e.g., using the Days Worked Equivalency for an employee who generally works three 10-hour days per week).
What Guidance Was Provided About Counting the Hours of Adjuncts?
The preamble to the Proposed Regulations noted that the Equivalency Methods may not work well for certain employees, such as Adjuncts, whose compensation may not be based primarily on hours and who may have unusual work schedules. Many colleges and universities pay Adjuncts based on the credit hours taught, and do not keep track of the number of hours Adjuncts work outside the classroom on such tasks as preparing for class, student and faculty meetings, reviewing student assignments, and grading.
The Treasury Department and the IRS received numerous comments from educational organizations about how to count hours for Adjuncts for purposes of determining full-time employee status. Suggestions given to the IRS on how to count hours for Adjuncts included:
- crediting three hours of service per week for each course credit taught by an Adjunct; and
- comparing the number of course credit hours taught by an Adjunct to the number of course credit hours taught by typical non-Adjunct faculty members working in the same or a similar discipline who are considered full-time employees.
The Proposed Regulations did not incorporate any of the suggestions made for counting hours of Adjuncts. The preamble to the Proposed Regulations noted that the rules for counting hours of service and applying hour equivalents contained in the Proposed Regulations should assist in addressing some of the concerns raised in the comments. However, the preamble also said that the Treasury Department and the IRS are continuing to consider, and invite further comment on, how best to determine the full-time status of Adjuncts and certain other employees. Further guidance on this issue could be issued.
The preamble to the Proposed Regulations provides that until further guidance is issued on Adjuncts, colleges and universities with Adjuncts should use a reasonable method of crediting hours of service for Adjuncts that is consistent with the employer mandate purposes of the Act. The Guidance further provides that:
A method of crediting hours would not be reasonable if it took into account only some of an employee’s hours of service with the effect of recharacterizing, as non-fulltime, an employee in a position that traditionally involves more than 30 hours of service per week. For example, it would not be a reasonable method of crediting hours…in the case of an instructor, such as an adjunct faculty member, to take into account only classroom or other instruction time and not other hours that are necessary to perform the employee’s duties, such as class preparation time.
What Time Periods Apply When Determining Whether An Ongoing Adjunct Is a Full-Time Employee, and Must Be Given a Chance to Enroll In An Affordable Health Plan?
The Proposed Regulations include detailed requirements about the time periods that will apply when determining whether an ongoing Adjunct will be a full-time employee, and must be given a chance to enroll in an Affordable Health Plan. Each college or university will need to:
- Designate a “Standard Measurement Period” – The designated standard measurement period will be used to determine if an ongoing Adjunct is a full-time employee. The standard measurement period designated by a college or university must be at least three months, and may not exceed twelve months.
- Designate a “Stability Period” – The designated stability period will follow the standard measurement period, and the stability period will be used for determining whether a college or university is offering at least 95 percent of its full-time employees the opportunity to enroll in an Affordable Health Plan. If an Adjunct was a full-time employee during the standard measurement period, the next stability period must be at least six months long and may not be shorter than the standard measurement period. If an Adjunct was not a full-time employee during the standard measurement period, the stability period must not exceed the standard measurement period.
- Decide Whether There Will Be An “Administrative Period” – A college or a university has the option to designate an administrative period between the end of a standard measurement period and the beginning of the next stability period that can be used for, among other things, determining who is an eligible full-time employee and providing applicable enrollment materials. If an administrative period is used, it generally may not: (1) exceed 90 days; (2) lengthen or shorten any standard measurement period or stability period; and (3) result in any gaps in applicable health coverage.
An Adjunct generally will be considered to be an ongoing Adjunct if he or she (a) has been employed for at least one standard measurement period (subject to certain exceptions if employment has not been continuous), and (b) is not considered a “new” Adjunct under the rules for “new” Adjuncts described below.
If an Adjunct is actually employed on average at least 30 hours per week during the designated standard measurement period, the Adjunct will have to be treated as a full-time employee during the following “stability period” for purposes of determining who must be provided an opportunity to enroll in an Affordable Health Plan (this stability period treatment will apply regardless of the number of hours of service the Adjunct has during that stability period, as long as the Adjunct remains employed by the applicable college or university). For an Adjunct who is employed on average less than 30 hours per week during the designated standard measurement period, the Adjunct will not have to be treated as a full-time employee during the following stability period for purposes of determining who must be provided an opportunity to enroll in an Affordable Health Plan (this will be true even if the Adjunct actually works on average 30 or more hours per week during the stability period).
Although the standard measurement period and the stability period generally should be the same for all employees, the Proposed Regulations will allow a college or a university to use different standard measurement periods and stability periods for: (a) employees represented by a union, and employees not represented by a union; (b) employees covered by different collective bargaining agreements; (c) employees covered by separate entities within a controlled group; and (d) certain employees in different states.
An example of how a college or university might designate these periods for a health plan that has a plan year that is a calendar year would be: (i) the first standard measurement period would be November 1, 2012 to October 31, 2013; (ii) the first administrative period would be November 1, 2013 to December 31, 2013; and (iii) the first stability period would be January 1, 2014 to December 31, 2014.
What Time Periods Will Apply to a New Adjunct?
The Proposed Regulations have special requirements for determining when a “new employee” (defined as an individual who has been employed for less than one complete standard measurement period) will have to be treated as a full-time employee. As applied to a new Adjunct, these new requirements will vary depending upon whether a new Adjunct is reasonably expected, at the time of hire, to be employed for at least 30 hours per week:
- New Adjuncts Who Are Reasonably Expected, At the Time of Hire, To Be Employed For At Least 30 Hours Per Week – If a new Adjunct is reasonably expected, at the time of hire, to be employed by the hiring college or university for at least 30 hours per week, that Adjunct will have to be treated as a full-time employee during the stability period that applies at that time. In order for the hiring college or university to avoid potential penalties for a violation of the employer mandate, the new Adjunct would have to be offered an opportunity to enroll in an Affordable Health Plan by the end of the first three calendar months of employment.
- New Adjuncts Who Are Not Reasonably Expected, At the Time of Hire, To Be Employed For At Least 30 Hours Per Week – If a new Adjunct is not reasonably expected, at the time of hire, to be employed by the hiring college or university for at least 30 hours per week, the college or university will have to establish an “initial measurement period” for that Adjunct that will start on the date the Adjunct was hired and will last for a designated period of at least three months and not more than twelve months. If the Adjunct works on average at least 30 hours per week during his or her initial measurement period, the Adjunct will have to be treated as a full-time employee during the stability period that starts after the Adjunct’s initial measurement period (and any applicable administrative period). The first stability period for the Adjunct must be at least six calendar months, and must not be shorter than the initial measurement period. If the Adjunct is not employed on average at least 30 hours per week during his or her initial measurement period, the Adjunct will not have to be treated as a full-time employee during the stability period that follows his or her initial measurement period (that stability period may not be more than one month longer than the initial measurement period, and may not last longer than the remainder of the standard measurement period plus any applicable administrative period in which the initial measurement period ends).
An analysis of an Adjunct’s hours generally also must be made during the standard measurement period that begins after the new Adjunct’s first date of employment.
What Time Periods Apply to a Rehired Adjunct?
The time periods that apply to a rehired Adjunct will vary depending upon whether the rehired Adjunct will be treated as a “new employee” under the Proposed Regulations:
- Rehired Adjunct Treated as a “New Employee” – If a rehired Adjunct is treated as a “new employee” under the Proposed Regulations, the initial measurement and stability period requirements described above with respect to new Adjuncts will apply. A rehired Adjunct generally will be treated as a “new employee” under the Proposed Regulations if either: (1) the Adjunct is credited with no hours of service for at least 26 consecutive weeks; or (2) the period that the Adjunct is not credited with any hours of service (to the extent such period is less than 26 consecutive weeks) is at least four weeks long, and is also longer than the Adjunct’s employment period that immediately preceded the period with no credited hours of service.
- Rehired Adjunct Who is Not Treated as a “New Employee” – If a rehired Adjunct is not treated as a “new employee” under the Proposed Regulations, the Adjunct generally will be treated as an ongoing Adjunct. This means, among other things, that the measurement and stability periods that would have applied had the Adjunct not had a break in service will apply when the Adjunct resumes service. The Proposed Regulations have special requirements for determining how to credit hours when there has been an employment break. For example, the Proposed Regulations provide an averaging method for employment break periods that generally would result in an employee of an educational institution who works full-time during the active portions of an academic year being treated as a full-time employee.
What Are Some of the More Important Issues That Should Be Considered Before Imposing Limits on the Number of Hours That Adjuncts Can Work?
There are numerous issues that should be considered by a college or university before it makes any decision to impose limits on the number of hours that Adjuncts can work in connection with the employer mandate. Among the more important of these issues are the following:
- “Anti-Abuse” Rules in the Proposed Regulations – The Proposed Regulations do not expressly preclude a college or university from limiting the hours of Adjuncts, but do have “anti-abuse” rules that could apply if an action is taken for the purpose of avoiding or undermining certain requirements under the Proposed Regulations.
- Potential ERISA Issue – If the employee benefit requirements of the Employee Retirement Income Security Act (“ERISA”) apply to a college or university (the plans of certain governmental and church-related higher education institutions are exempt from ERISA), decisions regarding the number of hours Adjuncts can work must be carefully structured so that they will not violate the requirements of ERISA. If, for example, a college or university that is subject to ERISA decides to limit the hours of Adjuncts for the sole purpose of denying them an opportunity to enroll in an Affordable Health Plan, the Adjuncts could, under certain circumstances, try to challenge that action under ERISA.
- Collective Bargaining Agreement Issues – If Adjuncts are covered by a collective bargaining agreement, that agreement should be reviewed prior to taking any action that would limit the hours of the Adjuncts.
- Employee Relations Issues – If a college or university is considering reducing the hours of Adjuncts, the impact of any such reduction on the pay of the Adjuncts should be analyzed. Such a reduction could have an adverse impact on the morale of the Adjuncts, and could make it more difficult to retain certain Adjuncts who may no longer be able to afford to remain employed with the applicable college or university.
What Actions Should Colleges and University Take Now Regarding their Adjuncts?
Colleges and universities should, if they have not already done so, start analyzing the full-time employee status of their Adjuncts. They will need to, among other things, decide:
- what reasonable method of crediting hours of services will be used for Adjuncts;
- what standard measurement periods to use;
- what stability periods to use; and
- whether to use administrative periods.
These decisions will affect how hours of Adjuncts will be computed during 2013, and those computations will then have an impact on which Adjuncts must be given an opportunity to enroll in an Affordable Health Plan in 2014.
The requirements for determining full-time employee status are complex, and will require sufficient “learning” time in order to ensure they are properly implemented. In addition to the requirements summarized above, there are numerous other requirements under the Act that will also need to be considered. Given the 2014 effective date of the employer mandate requirements, colleges and university should start preparing now for compliance with those requirements if they want to avoid unexpected, and potentially expensive, surprises next year.
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