Variable Hour Employees: What You Need to Know for Payroll
MAY 03, 2022
Businesses aren’t created equal, and that means payroll is often processed differently depending on the model. Benefits can vary as well. Some require simple salaried employees to run smoothly, and some are more complex operations with variable hour employees.
But what makes variable hour employees different? Let’s identify how these special types of employees may fit and how their payroll and benefits are calculated.
WHAT IS A VARIABLE TIME EMPLOYEE?
The Affordable Care Act (ACA) requires employers to provide certain health plan coverage to their full-time employees. Under the ACA, full-time employment is defined by anyone who is regularly scheduled to work 30 hours per week or more. Classification is critical for determining if and how the employee will be offered any type of coverage beyond hourly pay. Employers must accurately count the total number of full-time employees and, if the number exceeds 50, determine which workers qualify for health coverage.
A variable time employee is categorized as such because, when they are hired, the employer is unable to determine whether they will be working 30 hours or more per week. If a new employee is determined to be full time during an initial measurement period or an ongoing employee is determined to be full time during a standard measurement period, then the employee is treated as full time during a subsequent stability period during which coverage must be offered.
Most employers either well exceed the ACA threshold (e.g., they employ hundreds of full-time workers), or are clearly beneath it (only a handful of full-time staff). For those businesses that fall right around the 50 mark, it is important to accurately classify employees. Typically, it’s simple enough to identify employees who are scheduled to work 30 hours or more per week, but the fluctuating schedules of variable time employees can make things a bit tricky.
EVALUATING EMPLOYEES’ STATUS
Employers have a couple of options for determining whether a variable time employee should be considered full-time.
Monthly Measurement Method. Hours worked are analyzed on a month-to-month basis. Employees who are considered full-time work an average of 30 hours per week (or 130 hours per month) within any given month. While this method may seem straightforward, it lacks flexibility for businesses that employ multiple variable time workers whose contribution is difficult to capture within a 30-day block.
Look-Back Method. Another common approach, which allows an employer to implement a broader timeline for evaluating an employee’s status in advance of a coverage period. This method is different for new versus established workers. For new employees, their status is typically measured during a period of three to 12 months to determine their weekly work average and whether they will qualify as full-time. For existing employees, this method is more straightforward. If they averaged at least 30 hours per week during the previous 12 months, they are considered full-time.
Because implementing measurement, stability, and administrative periods is such a technical task, it is advised that employers consult with a trusted advisor who specializes in timekeeping services to stay accurate and compliant. Any misstep that results in inaccurate employee count or timekeeping can result in ACA violations, penalties, and fines.
WHEN IN DOUBT, TRUST THE EXPERTS
If this sounds like a lot to keep track of on top of your day-to-day business, it doesn’t have to be. The professionals at Payroll Vault all well-versed in all aspects of timekeeping management, as well as other systems and solutions that all small and mid-sized companies can benefit from outsourcing to help their businesses run smoother while fostering a happy and healthy workplace.
To learn more about what Payroll Vault can do for your business, request a quote today.