Paid interns can impact ACA Compliance for ALEs by adding to their full-time employee count. If hired to work at least 30 hours per week, paid interns are considered full-time employees for the ACA purposes. Misclassification of short-term employees, such as summer interns, can result in a failure to meet the employer’s requirement under the ACA Employer Mandate to offer medical plan coverage to at least 95% of all full-time employees.
In other words, however short-term employees may be classified by the employer, the IRS classifies all newly hired employees working 30 or more hours per week as full-time employees under the ACA, even if they only work 3, 4 or 5 months.
NOTE: Unpaid interns are not considered employees for ACA purposes.
WAITING PERIODS CAN NEGATE COVERAGE REQUIREMENTS
Two approaches can negate the employer’s requirement to provide medical coverage to paid interns. The first is when the ALE’s plan operates a waiting period longer than the intern’s paid employment; this waiting period can avoid the need to provide coverage even if an offer is made.
Under the ACA Employer’s Mandate, the first month of hire (if not hired to start on the first day of the month) and any plan waiting period are treated as limited non-assessment periods (Code 2D in line 16 of the Form 1095-C). The maximum waiting period allowed under the ACA is 90 days. Employers may be able to create a different waiting period up to 90 days.for interns (provided the insurance carrier approves if the plan is fully insured).
In other words, for FORM 1095 C purposes, an intern’s election of coverage can be delayed up to four months —the length of the plan’s waiting period plus the first month of hire (if not on day one of the month). This will usually span the full internship period.
LOOK BACK METHOD CAN ALSO NEGATE REQUIREMENTS
Employers in some circumstances can treat interns as seasonal employees, and thereby avoid the requirement to offer medical coverage — but only under thEelook back measurement method for calculating full-time status.
This approach has its complications. First of all, the employer must use the look back method and rules for all employees — not just seasonal employees. And not just for interns. The intern program must also meet the ACA definition of a seasonal employee – in other words, “customary annual employment” of 6 months or less that, by the nature of the position, begins at approximately the same time each year, such as summer or winter. A rotating schedule of internships throughout the year would not be considered seasonal and this approach is not available under such circumstances.
No offer of medical coverage is required during the initial measurement period because the seasonal employees have not yet achieved full-time status (and will likely cease employment long before the 12 month initial measurement period concludes). Initial measurement periods are considered limited non-assessment periods under the ACA (Code 2D in Line 16 of the Form 1095-C). Thus, a seasonal intern employee will likely never attain the 1560 hours of service required for medical plan eligibility and, if not attained, they are not eligible for coverage under the employer’s plan.
INTERNS OFTEN DON’T TAKE UP OFFERS
The simplest fail-safe way for ALEs to satisfy the 95% offer requirement and avoid a costly ACA Employer Mandate penalty under IRC section 4980H(a) is to offer paid interns medical plan coverage! If the coverage offered is also affordable then the employer is protected against the less costly IRC section 4980H(b) affordability penalty as well.
It is worth remembering that even if an offer is made, interns are primarily seeking job experience, not employee benefits. They are very likely covered elsewhere by a parent’s plan, a spouse’s plan, student insurance (required by all colleges and universities) or even MassHealth (Medicaid) and will have no need to elect the employer plan — at additional cost to the intern — for the short period of full-time employment. If covered elsewhere by health insurance in this way, interns will not be enrolled in an individual Exchange/Marketplace policy with a tax credit.
For more information on any of the above ACA terms, processes, and regulations, such as calculating ALE status, you can visit visit ACA CENTRAL by clicking here. Whatever your ACA questions or needs, from rapid data and systems troubleshooting to your final IRS e-filing via the IRSAIR system, or any step in-between, please do not hesitate to contact BENEFITSCAPE by emailing info@benefitscape.com or calling +1-508-655-3307. We have the deep understanding of benefits, compliance, and HCM software to deliver you the best solution.
