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Capping Hours: Risk Outweighs Reward

Employee benefits have become a hot topic in the business realm, especially in regard to the federal government’s Affordable Care Act. Ultimately, it comes down to dollars and cents, and companies are finding that a more affordable route may exist beyond offering traditional health coverage. However, if you are thinking of finding a loophole through lowering employees’ hours, you might want to think twice.

The Risk of Capping Hours

A recent idea to cap weekly hours has the majority of companies, expected to comply with the ACA’s employer mandate, considering this new approach. Capping an employee’s workweek at 30 hours would make him or her a “part-timer.” While the idea may sound great in theory, it could cause more harm than good.

Cheating the system potentially puts companies at risk of breaking another federal law: the Employee Retirement Income Security Act (ERISA). Section 510 of ERISA states that companies are prohibited from discriminating, in any way, against employees if the action (in this case “capping hours”) interferes with the attainment of rights to which an employee may become entitled. Decreasing employees’ hours to part-time status for the sole purpose of not having to offer health coverage may be in violation, so employers should take caution of the potential consequences, including litigation.

Should an employee choose to lay blame, the employer must show proven evidence that the action taken was a direct response to a logical business decision and not part of an effort to interfere with the employee’s right to benefits. If the worker can provide convincing counterevidence that the employer is being deceitful, he or she may claim not only the benefits owed, but other financial damages.

It’s Not as Easy as It Seems

It is advised that companies refrain from making significant workforce changes that could potentially violate the ERISA provision and, therefore, potentially result in a lawsuit. The legal ramifications and bad press are enough to make the cost of paying seem manageable. Furthermore, making employees part-time does not necessarily exempt companies from being labeled as a large employer under the ACA, which means affordable coverage still would have to be offered.  

Under the ACA, when deciding on whether your company qualifies for large-employer status, you must consider both full-time and full-time-equivalent employees. Full-time employees are those who have worked at least 30 hours a week or 130 hours of service per calendar month. To calculate the total of full-time equivalent employees, you will need to consider any employees that have worked less than 130 hours, which might include your part-time employees. The calculation looks like this,

  1. First, you calculate the number of hours of service for any employees that were not full-time for any given month (less than 130 hours but not more than 120 hours of service for any employee), then
  2. Divide the total hours of services for those employees by 120 to determine your total full-time equivalent employee count for any given month.

Once you add this number to your overall total, you could break the threshold, pushing your organization into large-employer status.

Non Looped Solution

Ramifications for violating Section 510 of ERISA should caution employers of the importance of accurately determining your part-time and full-time employee count before reporting is required. With the right tool, tracking is made easy. You quickly can generate reports showing employee hours when they are creeping toward 30 hours a week or full-time status. Having an HR system that makes it easy — versus trying to figure it out manually with spreadsheets — is extremely beneficial.

Can you accurately track your employee status?