Partner Mario K. Castillo sheds light on the impact of hiring seasonal workers under the ACA
Worker Visas and the Affordable Care Act
By Mario K. Castillo
A typical preliminary step in assessing your company’s Affordable Care Act (ACA) compliance requires you to count your employees. This sounds particularly straightforward, but like all things ACA, first blushes can be deceiving.
Analyzing the impact of hiring visa workers under the ACA requires traversing an intersection of labor, employment, immigration, tax, and now, healthcare law. The most common types of worker visas I get questions about are the the H2-A (“Temporary Agricultural Workers”) and the H2-B (Non-Agricultural Workers). These visas are the lifeblood of many businesses–thousands are awarded every year to employers. Such employers include plant growers, garden center retailers, horticultural distributors, landscape professionals, “green” industry suppliers, Christmas tree growers and sellers, greenhouses, nurseries, retail and wholesale florists and interior plantscapers.
There are essentially four points where questions arise from employers confused about the impact, under the ACA, of hiring seasonal visa workers: (1) the initial ALE determination, (2) the identification of full-time employees, (3) their propensity to trigger financial penalties, and (4) the calculation of penalties themselves. It is somewhat bold (or reckless some might say) to try to explain this on LinkedIn, but here goes!
1. The initial ALE determination.
I use “ALE” as short-form for Applicable Large Employers. ALEs are the types of employers that have to comply with the Affordable Care Act’s requirement to offer healthcare to full-time employees or risk paying a fine for failing to do so.
An ALE is a single employer that in the past calendar year employed an average of at least 50 full-time employees on business days during that year.
I’ve written several posts on the sometimes complex method of determining what a “single employer” is (spoiler alert: separate EIN numbers do not count as separate employers), but today we need to focus on the “at least 50 full-time employees” part of the definition.
Employers should note that the phrase “50 full-time employees” is not qualified by the immigration status of the employee. Indeed, all that matters is that the employee is a full-time employee.
The ACA’s employer mandate defines a full-time employee as any employee that performs an average of 30 hours of service per week during any one month.
Again, there is nothing there that speaks to visa holders because visa holders, that perform an average of 30 hours of service or more a week during any month, are full-time employees under these rules. Moreover, to the extent that they are not full-time employees, their part-time hours are aggregated to identify Full-Time Employee Equivalents just like all other employees.
There is one exception to this rule, but it has nothing to do with the immigration status of the worker involved. The exception is called the seasonal worker exception because it applies equally to all seasonal workers—regardless of their respective immigration status.
The seasonal worker exception allows an employer that would not be an ALE, but for the inclusion of the seasonal workers, to ignore the seasonal workers in making the initial ALE determination so long as the employer does have more than 50 (or 99 in 2015) full-time employees or their equivalent for a period longer than exactly 120 days. So if you are an employer with visa workers that do not work for you longer than 120 days, you might be able to use the seasonal worker exception to avoid the employer mandate altogether, but that exception has nothing to do with an employee’s immigration status. If you hire visa workers for a season longer than 120 days, the regular rules apply to those employees.
2. Identifying full-time employees entitled to offers of coverage.
Once an employer is an ALE, the ALE has determine how many full-time employees it employs so that it can offer those full-time employees health insurance (if it chooses to offer insurance instead of risking paying a fine).
Full-time employees are to be tracked, by the default rules, on a monthly basis. Nevertheless, many employers intend on avoiding having to make monthly calculations throughout the year by using something called a look-back measurement period. During a measurement period, most employers in these industries will use one that is 12 months, employee hours are measured and averaged to determine if a particular employee is a full-time employee. If the employee is a full-time employee based on the measurement period, the ALE must offer insurance during the corresponding stability period. Measurement periods are only available for employees where the employer cannot tell if the employee will be part-time or full-time.
Typically, if an employer knows that an employee will perform at least 30 hours of service a week when hired, the employer must treat that employee as a full-time employee (and is therefore not eligible for a measurement period).
There is a seasonal employee exception (not to be confused with the seasonal worker exception discussed earlier) where an ALE can treat an otherwise full-time seasonal employee (including visa holders) as a variable-hour employee and subject such employees to a corresponding measurement period. This essentially transforms someone that you would have to offer insurance to as soon as they are eligible (after orientation and waiting periods expire) to a much later period when the otherwise full-time seasonal employee is no longer employed by your company.
The definition of seasonal employee for this purpose is more expansive than its seasonal worker cousin:
“For this purpose, the final regulations provide that a seasonal employee means an employee in a position for which the customary annual employment is six months or less.”
Although longer than 120 days, the “seasonal” definition is not indefinite and most employers will be required to adhere to a six-month season. So the utility of this rule to an employer with 9-month seasons is probably nil.
Likewise, sometimes seasonal workers, including visa holders, work a significant amount of hours even if done only for a season. It is not uncommon for a 9-month seasonal employee to qualify as a full-time employee, under the ACA, even if the employer averages those work hours, over the nine months, over a 12 month measurement period.
Like its seasonal-worker cousin, here, the name of the game is shortening seasons. If an employer cannot get under six months, it is probably not going to be able to use this exception. Moreover, even if it can use the exception, the practical, real-world consequence may be to just delay offers of coverage to such individuals (until a time that they may no longer be employed by the employer) rather than completely foreclose the necessity of making those offers (because the employee averaged more than 30 hours a week over the measurement period even if he/she only worked a 9-month season).
3. Full-time visa workers can trigger employer mandate penalties.
Employer mandate penalties for failing to offer insurance (or the right kind of insurance) are triggered when a full-time employee obtains, from the government, a tax-credit or subsidy toward their health insurance from an individual exchange. Seasonal employees, including visa holders, are eligible to buy insurance on the individual exchanges.
And just like every other taxpayer who meets certain financial requirements, they are eligible for subsidies. Once such a worker obtains the subsidy, the government audits the employer to determine if a penalty should be assessed.
In the real world, it is hard to predict whether seasonal, foreign workers would even apply for health insurance (although because they are not eligible for Medicaid, it might be more likely than it would be if they were so eligible), but the reality is that from a purely technical standpoint they stand on equal footing with all other employees.
4. Full-time visa workers and penalty calculations.
Once a full-time employee qualifies for a subsidy or tax credit on an exchange and the employer is an ALE, the government will make inquiries and potentially assign a non-deductible fine depending on the circumstances against that employer. This particular fine comes in one of two variations typically referred to as the strong and weak penalties. An employer that offers some form of health insurance, even if it is not totally compliant, is subject to the weak penalty. An employer that offers nothing is subject to the strong penalty.
- Visa Workers and the Weak Penalty
The weak penalty stipulates that an employer will pay $ 250 a month for every full-time employee that obtains a subsidy or tax credit on the individual exchange (or $3,000 a year) unless an exemption applies. So if an employer has one such full-time employee for a year, the fine would be $3,000. As detailed in the last section, although highly improbable to come to fruition, visa holders are technically eligible for the very subsidies that trigger penalties. They can sign up for coverage, obtain and receive subsidies, but how likely this is to happen is anyone’s guess.
- Visa Workers and the Strong Penalty
The strong penalty stipulates that an employer will pay $167 a month for all of its full-time employees beyond a certain number (the certain number varies depending on the employer and the year) once a full-time employee qualifies for a subsidy or tax credit on the individual exchange.
So for example, an ALE with 130 full-time employees or their equivalent will start to pay after the 80th full-time employee this next year, and after the 30th full-time employee the year after.
Again, the visa-worker can trigger employer mandate penalties by qualifying for subsidies. The question remains, however, whether such employees “count” for the purposes of penalty determination. The short answer is that they do. If an employer has 130 full-time employees in 2015, the first 80 will be discounted, leaving 50. Even if all those 50 are seasonal foreign workers, so long as they are full-time employees the employer will be subject to a $8,350 fine for failing to offer coverage during each month where the full-time employee obtains a subsidy, where the employer offers nothing, and where an exemption does not shield the employer. Visa workers count just like everyone else.
Thanks for reading my post. I tried to keep it short, but having spent several years working on this stuff, sometimes I get carried away. I hope it was helpful to you, and if you have any questions, comments, etc., please post them below!
Photo: Farmworker Justice