ALEs, Be Aware: Two Sets of Rules Must Be Followed for Rehires

ALEs, Be Aware: Two Sets of Rules Must Be Followed for Rehires

Applicable Large Employers (ALEs) face a potentially confusing situation when bringing someone back onto their work force, commonly referred to as a rehire; and need to pay attention that they are following two different sets of rules:  first, the IRS’ rules on Employer Share Responsibility, and then, second, the rules which govern cafeteria plans.

In general, every rehire situation will almost certainly be a little different, depending on how long the employee has been absent and which measurement period (monthly or lookback) the employer utilizes.

In reality, under the IRS shared responsibility rules, most employers use the 13-week rule to determine when a returning employee is a new hire or a continuing employee.  Educational institutions must still adhere to the 26-week rule.

Employer Shared Responsibility Rules

when rehire occurs

if 13 consecutive weeks or less

 

Employer must treat employee as a continuing employee, i.e.,

a new offer is not required. 

if 13 consecutive weeks or more

 

Employer must treat employee as a “new hire” , i.e.,

an offer is required.

Be Aware — Employers are required to make an offer to full-time employees only one time in a given plan year.

Cafeteria Plan Rules

when rehire occurs

if 30 days or less from termination date (and in same plan year)

 

Employer must reinstate the previous decision.

if more than 30 days after the termination date

 

Follow cafeteria plan document which could require previous decision be honored OR could require a new opportunity to accept or decline coverage.

With these rules in mind, ALEs who offer coverage to employees on a pre-tax basis should consider the following when determining whether a re-hired employee requires an offer of coverage:

  1. Re-hired employee previously waived an offer of coverage & returns to employment 30 days (or less) after termination date in the same plan year: The Employer must reinstate the employee’s waiver and should not offer the employee coverage. The IRS Employer Shared Responsibility rules only require one offer with respect to the plan year, and the cafeteria plan rules prohibit the employer from doing anything other than reinstate the re-hired employee’s waiver.
  2. Re-hired employee previously accepted an offer of coverage & returns to employment 30 days (or less) after termination date in the same plan year: The Employer must reinstate the employee’s coverage. If the re-hired employee is a full-time employee (as determined under either the monthly measurement method or look-back measurement method), then the IRS Employer Shared Responsibility rules require that the employer treat the re-hired employee as a continuing employee and reinstate the employee’s coverage election no later than the first day of the month following return to employment. Further, the cafeteria plan rules require that the employer reinstate the employee’s previous election since the employee is returning after an absence of 30 days or less.
  3. Re-hired employee previously waived an offer of coverage & returns to employment more than 30 days but less than 13 consecutive weeks after termination date in the same plan year: The Employer may not be required to offer coverage, but it should consult its cafeteria plan documents. Even if the re-hired employee is a full-time employee (as determined under either the monthly measurement method or look-back measurement method), the IRS Employer Shared Responsibility rules only require that an employer offer once with respect to the plan year. Thus, the employer would not have any Section 4980H penalty exposure for failing to offer coverage to this re-hired employee. However, the employer should consult its cafeteria plan documents to ensure they are treating the re-hired employee in accordance with the terms of those documents.  
  4. Re-hired employee previously accepted an offer of coverage & returns to employment after at least a 13 consecutive week absence in the same plan year: The Employer should treat the re-hired employee as a new employee and determine whether the employee requires a new offer of coverage.  Because the re-hired employee is returning after an absence of at least 13 weeks, then the IRS Employer Shared Responsibility rules allow the employer to treat the re-hired employee as a new employee. With the re-hired employee being a new employee, then the Employer must determine whether the employee is a full-time employee (under either the monthly measurement method or look-back measurement method), and if so, offer coverage no later than satisfaction of the waiting period that does not exceed 90 calendar days in order to avoid exposure to Section 4980H penalties. If for some reason the cafeteria plan documents did not allow for an offer of coverage to a new employee in this situation, then the Employer may need to work with its legal counsel or benefits administration vendors to amend its cafeteria plan documents so that it avoids unnecessary exposure to Section 4980H penalties in this scenario.
  5. Re-hired employee previously waived an offer of coverage & returns to employment after at least a 13 consecutive week absence in the same plan year: The Employer may not be required to offer coverage, but it should consult its cafeteria plan documents. Again, because the IRS Employer Shared Responsibility rules only require that an employer offer once to a full-time employee with respect to the plan year, the employer is not required by those rules to make a second offer of coverage within the same plan year. However, the employer should consult its cafeteria plan documents to ensure they are treating the re-hired employee in accordance with the terms of those documents.


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