Colleges and universities are faced with difficult decisions on how to count the hours of adjunct faculty (“Adjuncts”) when determining whether they are “full-time employees” for purposes of the “employer mandate” provisions (also known as the “pay-or-play” or “employer shared responsibility” provisions) of the Patient Protection and Affordable Care Act (“Act”). Starting in 2014, the employer mandate provisions of the Act generally will require colleges and universities to offer at least 95 percent of their “full-time employees” an opportunity to enroll in an affordable health plan. If a college or university fails to satisfy this requirement, it could be exposed to potentially significant penalties.
For purposes of determining full-time employee status, a full-time employee generally means an employee who is actually employed on average at least 30 hours per week. Determining whether Adjuncts are actually employed on average at least 30 hours per week is proving to be a difficult task for colleges and universities. The United States Department of Treasury (“Treasury Department”) and the Internal Revenue Service (“IRS”) recently issued guidance on this issue, and that guidance is summarized below.
There have been numerous media reports about certain higher education institutions (e.g., Youngstown State University, Stark State College, the Community College of Allegheny County, and Palm Beach State College) imposing limits on the number of hours that Adjuncts can work in order to avoid having them be subject to the employer mandate. There are several issues a college or university should consider before taking such an action, and they are described below.
How Are “Hours of Service” Defined in the Proposed Regulations?
Proposed regulations that were recently issued by the Treasury Department and the Internal Revenue Service (“Proposed Regulations”) provide that “hours of service” generally include both: (1) hours paid for service; and (2) all hours for paid time off. The Proposed Regulations provide detailed requirements on (a) how to compute these hours, and (b) three “equivalency” methods that generally must be used to determine the hours of service for an employee who is not paid on an hourly basis (for a summary of those requirements, please see the memo at http://www.bsk.com/site/files/032013_revised_ememo_higher_ed.pdf ). The preamble to the Proposed Regulations noted, however, that these three “equivalency” methods may not work well for certain employees, such as Adjuncts, whose compensation may not be based primarily on hours and who may have unusual work schedules.
What Guidance Was Provided About Counting the Hours of Adjuncts?
The Treasury Department and the IRS received numerous comments from educational organizations about how to count hours for Adjuncts for purposes of determining full-time employee status. Many colleges and universities pay Adjuncts based on the credit hours taught, and do not keep track of the number of hours Adjuncts work outside the classroom on such tasks as preparing for class, student and faculty meetings, reviewing student assignments, and grading. Suggestions given to the IRS on how to count hours for Adjuncts included:
- crediting three hours of service per week for each course credit taught by an Adjunct; and
- comparing the number of course credit hours taught by an Adjunct to the number of course credit hours taught by typical non-Adjunct faculty members working in the same or a similar discipline who are considered full-time employees.
The Proposed Regulations did not incorporate any of the suggestions made for counting hours of Adjuncts. However, the preamble to the Proposed Regulations said that the Treasury Department and the IRS are continuing to consider, and invite further comment on, how best to determine the full-time status of Adjuncts and certain other employees. Further guidance on this issue could be issued.
The preamble to the Proposed Regulations provides that until further guidance is issued on Adjuncts, colleges and universities with Adjuncts should use a reasonable method of crediting hours of service for Adjuncts that is consistent with the purposes of the Act. The Guidance further provides that:
A method of crediting hours would not be reasonable if it took into account only some of an employee’s hours of service with the effect of recharacterizing, as non-fulltime, an employee in a position that traditionally involves more than 30 hours of service per week. For example, it would not be a reasonable method of crediting hours…in the case of an instructor, such as an adjunct faculty member, to take into account only classroom or other instruction time and not other hours that are necessary to perform the employee’s duties, such as class preparation time.
What Time Periods Apply When Determining Whether An Adjunct Is a Full-Time Employee, and Must Be Given a Chance to Enroll In An Affordable Health Plan?
The Proposed Regulations include complex requirements about the time periods that will apply when determining whether an ongoing Adjunct will be a full-time employee, and must be given a chance to enroll in an affordable health plan. Each college or university will need to, among other things:
- Designate a “Standard Measurement Period” – The designated standard measurement period will be used to determine if an ongoing Adjunct is a full-time employee.
- Designate a “Stability Period” – The designated stability period will follow the standard measurement period, and the stability period will be used for determining whether a college or university is offering at least 95 percent of its full-time employees the opportunity to enroll in an affordable health plan.
- Decide Whether There Will Be An “Administrative Period” – A college or a university has the option to designate an administrative period between the end of a standard measurement period and the beginning of the next stability period that can be used for, among other things, determining who is an eligible full-time employee and providing applicable enrollment materials.
The Proposed Regulations have detailed requirements that must be satisfied when setting up these time periods. An example of how a college or university might designate these periods for a health plan that has a plan year that is a calendar year would be: (a) the first standard measurement period would be November 1, 2012 to October 31, 2013; (b) the first administrative period would be November 1, 2013 to December 31, 2013; and (c) the first stability period would be January 1, 2014 to December 31, 2014.
These time period requirements will vary depending upon, among other things, whether an Adjunct is: (1) an ongoing employee; (2) a new employee; or (3) a rehired employee (for a summary of these time period requirements, please see the memo at http://www.bsk.com/site/files/032013_revised_ememo_higher_ed.pdf ).
What Are Some of the More Important Issues That Should Be Considered Before Imposing Limits on the Number of Hours That Adjuncts Can Work?
There are numerous issues that should be considered by a college or university before it makes any decision to impose limits on the number of hours that Adjuncts can work in connection with the employer mandate. Among the more important of these issues are the following:
- “Anti-Abuse” Rules in the Proposed Regulations – The Proposed Regulations do not expressly preclude a college or university from limiting the hours of Adjuncts, but do have “anti-abuse” rules that could apply if an action is taken for the purpose of avoiding or undermining certain requirements under the Proposed Regulations.
- Potential ERISA Issue – If the employee benefit requirements of the Employee Retirement Income Security Act (“ERISA”) apply to a college or university (the plans of certain governmental and church-related higher education institutions are exempt from ERISA), decisions regarding the number of hours Adjuncts can work must be carefully structured so that they will not violate the requirements of ERISA. If, for example, a college or university that is subject to ERISA decides to limit the hours of Adjuncts for the sole purpose of denying them an opportunity to enroll in an affordable health plan, the Adjuncts could, under certain circumstances, try to challenge that action under ERISA.
- Collective Bargaining Agreement Issues – If Adjuncts are covered by a collective bargaining agreement, that agreement should be reviewed prior to taking any action that would limit the hours of the Adjuncts.
- Employee Relations Issues – If a college or university is considering reducing the hours of Adjuncts, the impact of any such reduction on the pay of the Adjuncts should be analyzed. Such a reduction could have an adverse impact on the morale of the Adjuncts, and could make it more difficult to retain certain Adjuncts who may no longer be able to afford to remain employed with the applicable college or university.
What Actions Should Colleges and University Take Now Regarding their Adjuncts?
Colleges and universities should, if they have not already done so, start analyzing the full-time employee status of their Adjuncts. They will need to, among other things, decide: (1) what reasonable method of crediting hours of services will be used for Adjuncts; (2) what standard measurement periods to use; (3) what stability periods to use; and (4) whether to use administrative periods. These decisions will affect how hours of Adjuncts will be computed during 2013, and those computations will then have an impact on which Adjuncts must be given an opportunity to enroll in an affordable health plan in 2014.
The requirements for determining full-time employee status are complex, and will require sufficient “learning” time in order to ensure they are properly implemented. In addition to the requirements summarized above, there are numerous other requirements under the Act that will also need to be considered. Given the 2014 effective date of the employer mandate requirements, colleges and university should start preparing now for compliance with those requirements if they want to avoid unexpected, and potentially expensive, surprises next year.