The end of summer doesn’t always mean the end of employment for seasonal employees. Employers often rely on the pool of talent they have developed through seasonal hiring when it comes time to fill new or newly vacated ongoing positions. Here are several things to keep in mind when hiring or rehiring a seasonal employee into a year-round, benefits-eligible role.
- Age of participation. Many employers sponsor summer internships for high school or college students who go on to become full- or part-time employees. Before enrolling a converted summer employee in a benefits plan, the employer should check the plan document to ensure that the employee meets any age requirements set forth in the plan. Under Internal Revenue Code (Code) Section 410(a)(1)(A)(i), an employer may limit participation in a retirement plan to employees age 21 or older. Welfare plans are less likely to have minimum age requirements, but employers may find them in nonmedical programs such as long-term care insurance. Any age requirement should be spelled out in the plan document and the summary plan description (SPD).
- Credit for retirement plan eligibility service. While many employers exclude student, intern, or seasonal employees from participating in their retirement plans, summer employment counts toward the satisfaction of any eligibility service requirement for retirement plan participation. Under Code Section 410(a)(1)(A)(ii), a plan cannot require more than one year of eligibility service for participation. A converted employee’s eligibility service is initially measured during the 12 months beginning with the employee’s original date of hire, known as the eligibility computation period. Employees accrue eligibility credit for all service during the eligibility computation period, even time worked before the employee was in a class of employees entitled to retirement benefits. An employee’s eligibility service also includes time worked with any related employers, such as members of a controlled group under Code Section 414(c) or an affiliated service group under Code Section 414(m).
Note that the converted employee need not be continuously employed throughout the entire eligibility computation period for the service to be counted toward the satisfaction of any service requirement. For example, a retail employee might work the summer and the holiday season within the same eligibility computation period. For an employer that determines a year of service using the counting hours method, all of the hours worked from the date of hire until the employee’s anniversary date will count toward any eligibility requirement if the employee is subsequently hired into a benefits-eligible position. If an employer uses the elapsed time method, any break of service of less than 12 months is “bridged” or “spanned,” meaning it is included in the period of service that begins on the employee’s original hire date. As a result, the elapsed time method is generally considered more favorable to seasonal employees.
Any eligibility service requirements, and the method used to determine a year of service, should be clearly stated in the plan document and the SPD.
- Health plan measurement periods. Under the Affordable Care Act (ACA), “seasonal employees” (i.e., employees who are hired into a position for which the customary annual employment is six months or less) may be measured during an initial measurement period to determine whether they will be “full-time” employees to whom an applicable large employer must offer coverage in order to avoid penalties under shared responsibility provisions of the ACA (Code Section 4980H), even though they work more than 30 hours per week when they are hired. However, the ACA provides a special rule to help employers determine when to extend an offer of health plan coverage to an employee transitioning from a seasonal position to an ongoing full-time position. To avoid all ACA shared responsibility penalties under Code Section 4980H, an applicable large employer must make an offer of minimum essential coverage that is affordable and provides minimum value to such employee no later than the first day of the fourth full calendar month following the change in employment status, or, if earlier and the employee averages more than 30 hours of work each week during the initial measurement period, the first of the month following the end of the initial measurement period and any optional administrative period. In each case, the requirement to offer coverage is contingent upon the employee remaining employed through the offer date. See 26 CFR 54.4980H-3(d)(3)(vii).
An employer should formally memorialize the methodology it uses to determine whether an employee is “full time,” including the initial measurement period and any administrative period, but need not include the methodology in its plan document or SPD.
- Disclosures. Employers may think of converted summer employees as “old hands,” but when they are newly entitled to benefits, employers have an obligation to provide them with all applicable new-hire disclosures. These disclosures may include a retirement plan automatic enrollment notice, a health plan Summary of Benefits and Coverage, and beneficiary designations for life and accident plans.
Failure to cover eligible employees, or coverage of ineligible employees, can result in employee disputes or operational errors. Careful reading of plan documents, and total alignment between the documents and benefit administration, can help employers ease summer employees into the fall.