Legislation Introduced to Change Full-Time Employee Definition Under the Affordable Care Act
On January 7, 2015, U.S. Senators Susan Collins (R-ME) and Joe Donnelly (D–IN) along with Lisa Murkowski (R-AK) and Joe Manchin (D-WV) introduced the Forty Hours is Full Time Act legislation that would amend the definition of a “full-time employee” under the Affordable Care Act to an employee who works an average of 40 hours per week. In the coming days, the House is expected to vote on its own version of this legislation, the Save American Workers Act.
The teeth of the Affordable Care Act have the ability to sink excise taxes on employers who do not offer affordable healthcare coverage to full-time employees, which the Affordable Care Act defines as employees who work an average of 30 hours per week. In announcing the introduction of the legislation, Senator Collins argued that the current definition “creates a perverse incentive for businesses to cut their employees’ hours so they are no longer considered full time.” The implication being that the Forty Hours is Full Time Act will increase employee wages because the employers who reportedly reduced employee hours below 30 per week in an effort to avoid costs associated with providing healthcare coverage to employees (or the tax for not providing coverage to employees) are the same employers who will raise employee hours above 30 per week if they are not faced with such costs.
A cost estimate issued by the Congressional Budget Office states that legislation changing the definition of full-time employee would not only add $53.2 billion to the deficit between 2015 and 2025, but it would cut the number of people receiving healthcare coverage through employers by roughly 1 million and increase the number of uninsured by less than 500,000 people. The Congressional Budget Office also explains that such legislation would reduce the number of employers required to pay excise taxes for not providing coverage to employees.
In a January 7, 2015 Statement of Administrative Policy, the Executive Office of the President stated that the Administration strongly opposes the introduced legislation because it would significantly increase the deficit, shift costs to taxpayers, reduce the number of Americans with employer-based health insurance coverage, and create incentives for employers to shift their employees to part-time work―causing the problem it intends to solve. It appears that the President would veto any bill increasing the 30 hour threshold.
If the introduced legislation is signed into law, it will be welcomed news for employers and likely alleviate the aforementioned perverse incentive to cut employee hours. If the introduced legislation is not signed into law, employers should tread carefully when considering changes in employee hours to avoid the ACA mandate, as other laws may be triggered when implementing such a change. For example, section 510 of the Employee Retirement Income Security Act prohibits employers from taking employment actions that have the purpose of interfering with an employee’s right to benefits under an employee benefit plan. Prudence suggests employers contact their legal counsel prior to restructuring employee hours or otherwise modifying their employee benefit plans in an attempt to circumvent current requirements under the ACA.