Why is Categorizing Employees Important?
Categorizing an employee correctly when hired is the first step to completing eligibility management. The IRS has very specific guidance on how to classify employees, but we have listed a simplified overview below.
- Full Time Eligible: Employee is reasonably expected to work 30+ hours per week
- Variable Hour: It can not be reasonably determined if employee will work 30+ hours per week
- Part Time Ineligible: Employee is not reasonably expected to work 30 hours per week
How Does Eligibility Work When Enforcing Variable Hour Eligibility?
For plans that are enforcing Variable Hour Eligibility, there are now 2 eligibility steps that occur prior to an employee being eligible for the plan. First, the employee needs to pass the ACA Classification Eligibility. Secondly, for those who pass ACA Eligibility, employee needs to pass plan eligibility.
Step 1: ACA Classification Eligibility
When plans are enforcing Variable Hour Eligibility, the ACA classification is used to determine who should be ACA eligible.
Full Time Eligible: Employee is not measured and automatically passes ACA Eligibility. Proceed to the plan eligibility testing.
Part Time Ineligible: Employee is measured, but will not be considered eligible for a plan even if the employee meets hours requirements. If employee hours increase and employee is improperly classified as Part Time instead of Eligible, the ACA classification needs to be changed accordingly.
Variable Hour: Employee is measured and must pass hours requirements.
- If employee passes measurement testing because hours are 130+, the employee is considered ACA eligible, and proceeds to the plan eligibility testing.
- If employee does NOT pass measurement testing, the employee will NOT be considered ACA eligible for the plan, and will NOT be evaluated for plan eligibility testing.
Step 2: Plan Eligibility
Based on the same 3 ACA classifications, let's review how plan eligibility is determined.
Full Time Eligible: Employee eligibility is evaluated based on plan eligibility rules, and effective date is calculated based on the employees hire date, or demographic change date, and the plan entry and waiting period rules.
Part Time Ineligible: Not applicable. This employee would never pass ACA eligibility, therefore could never be considered eligible regardless of plan rules.
Variable Hour: Employee eligibility is evaluated based on plan eligibility rules, only for those employees who PASSED measurement testing. The effective date is based on the new hire measurement period setup rules regarding measurement periods and admin periods. Note: These employees do not have to wait the additional entry rule and waiting period configured on the medical plans. Their eligibility dates were configured in the measurement period and admin period ACA setup.
Should I use "class" to separate the Full-time eligible from the Part-Time/Variable Hour employees?
No! When using "Enforce Variable Hour Tracking" the system doesn't need to have both the company "class" (when we use "class" we are referring to classes, divisions, department, office, and business units configured on the company settings) and the ACA classification set up to differentiate the employees. With proper plan design, the variable hour employees will be in an eligible grouping under the medical plans; however, the employees who have an ACA classification of Variable Hour will not be marked as eligible for the medical plans until they pass their measurement period. You should not need to do a "class change" or an ACA classification change when a Variable Hour employee passes their measurement period for purposes of making the employee eligible for the medical plans.
Now that you know why categorizing employees is the building block to managing eligibility, how can you easily categorize employees? We've built two different options for categorizing employees.
First, from the ACA tab, the Manage Employees tab will give you a list of Employees who are Incomplete, and a list of the employees Missing ACA Category.
The Missing ACA Category list is a new tool we've created to help an administrator classify a smaller set of employees. We are displaying the first 50 employees who have either unset Compensation Type or ACA Classification. Use this tool to fill in the correct classifications for your employees. We've tried to simplify the process by pre-selecting the radio button for those who have Hourly Rates on their compensation tab as Hourly Employees, and those who do not as Salary. Page needs to be saved before employee records are updated.
For those who don't want to click so many radio buttons, we have an import option under the Download employee census link on the page. This will create an excel file of the employees who need classification and the columns for the missing data. Fill in the blanks, and go to the import link to update the employee records.
The Incomplete list is a full list of employees who are missing ACA Categories PLUS missing annual or hourly compensation. There isn't a cool categorize tool on that list, which is why we made that a separate list. It does have the same download a census file to excel to fill in the missing components and import. Employees will show on this list if they are missing:
- a hire date
- Compensation Type classification
- ACA Classification
- Compensation Type of Salary and missing a salary
- Compensation Type of Hourly and missing an hourly rate
Best practice is to complete the proper classifications on all affected employees until lists reflect 0 incomplete and 0 missing ACA category.