Notice 2012-58

Part III. Administrative, Procedural, and Miscellaneous
Determining Full-Time
Employees for Purposes
of Shared Responsibility for
Employers Regarding Health
Coverage (Section 4980H)

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Notice 2012–58
I. PURPOSE AND OVERVIEW
This notice describes safe harbor methods that employers may use (but are not
required to use) to determine which employees are treated as full-time employees
for purposes of the shared employer responsibility provisions of § 4980H of the
Internal Revenue Code (Code). Specifically, the administrative guidance in this
notice, modifying and expanding on previous guidance, includes a safe harbor
method that employers may apply to specified newly-hired employees.
As described more fully below, this notice —

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1

Expands the safe harbor method described in a previous notice to provide
employers the option to use a lookback measurement period of up to 12
months to determine whether new variable hour employees or seasonal employees are full-time employees, without being subject to a payment under
§ 4980H for this period with respect
to those employees. An employee is a
variable hour employee if, based on the
facts and circumstances at the date the
employee begins providing services to
the employer (the start date), it cannot
be determined that the employee is reasonably expected to work on average at
least 30 hours per week. (The 30 hours
per week average reflects the statutory definition of full-time employee
in § 4980H(c)(4) and is the definition
of “full-time employee” as used in this
notice.) Seasonal employee is defined
in section III.D.5, below.
Provides employers the option to use
specified administrative periods (in
conjunction with specified measurement periods) for ongoing employees

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(as defined in section III.A, below)
and certain newly hired employees;
Facilitates a transition for new employees from the determination method
the employer chooses to use for them
to the determination method the employer chooses to use for ongoing
employees; and
Provides employers reliance, at least
through the end of 2014, on the guidance contained in this notice and on
the following approaches described in
prior notices:
1.

2.

3.

for ongoing employees, an employer will be permitted to use
measurement and stability periods
of up to 12 months;
for new employees who are
reasonably expected to work
full-time, an employer that maintains a group health plan that
meets certain requirements will
not be subject to an assessable
payment under § 4980H for failing
to offer coverage to the employee
for the initial three months of employment; and
for all employees, an employer
will not be subject to an assessable payment under § 4980H(b)
for an employee if the coverage
offered to that employee was affordable based on the employee’s
Form W–2 wages reported in Box
1 (often referred to as the affordability safe harbor).

This guidance is intended to encourage employers to continue providing and
potentially to expand group health plan
coverage for their employees by permitting employers to adopt reasonable
procedures to determine which employees
are full-time employees without becoming
liable for a payment under § 4980H, to
protect employees from unnecessary cost,
confusion, and disruption of coverage,
and to minimize administrative burdens
on the Affordable Insurance Exchanges
(Exchanges).
Simultaneously with the issuance of
this notice, the Department of the Trea-

sury, the Department of Labor (DOL), and
the Department of Health and Human Services (HHS) (the Departments) are jointly
providing administrative guidance under
§ 2708 of the Public Health Service Act
(PHS Act).1 PHS Act § 2708 applies to
group health plans and group health insurance issuers and provides that any waiting
period under a group health plan must not
exceed 90 days. To clarify how the PHS
Act § 2708 90-day waiting period limitation coordinates with § 4980H, this notice
applies portions of the Departments’ separate and simultaneous PHS Act § 2708
guidance. DOL and HHS concur in the
application of PHS Act § 2708 in this
notice.
This notice consists of a background
section briefly summarizing the § 4980H
and PHS Act § 2708 statutory framework
and the administrative guidance issued to
date (section II); a description of the safe
harbors available for employers for determining full-time employee status in the
case of ongoing employees and newlyhired variable hour and seasonal employees (including the transition from newlyhired to ongoing employees and a series
of examples illustrating how the safe harbors apply) (section III); a description of
the reliance provided to employers through
at least 2014 (section IV); and a request for
comments (section V).
II. BACKGROUND
A. Section 4980H
Section 4980H was added to the Code
by § 1513 of the Patient Protection and Affordable Care Act (Affordable Care Act)
(enacted March 23, 2010, Pub. L. No.
111–148) and amended by § 1003 of the
Health Care and Education Reconciliation
Act of 2010 (enacted March 30, 2010, Pub.
L. No. 111–152).2 Section 4980H applies
to “applicable large employers” (generally,
employers who employed at least 50 fulltime employees, including full-time equivalent employees, on business days during
the preceding calendar year).
Generally, § 4980H provides that an
applicable large employer is subject to an

Notice 2012–59, DOL Technical Release 2012–02 and HHS Bulletin titled Guidance on 90-Day Waiting Period Limitation under Public Health Service Act § 2708.

2

Section 4980H was further amended by section 1858(b)(4) of the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (enacted April 15, 2011, Pub. L. No. 112–10),
effective for months beginning after December 31, 2013.

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436

2012–41 I.R.B.

assessable payment if either (1) the employer fails to offer to its full-time employees (and their dependents) the opportunity
to enroll in minimum essential coverage3
under an eligible employer-sponsored
plan and any full-time employee is certified to receive a premium tax credit
or cost-sharing reduction (§ 4980H(a)),
or (2) the employer offers its full-time
employees (and their dependents) the opportunity to enroll in minimum essential
coverage and one or more full-time employees is certified to receive a premium
tax credit or cost-sharing reduction (generally because the employer’s coverage
either is not affordable within the meaning
of § 36B(c)(2)(C)(i) or does not provide
minimum value within the meaning of
§ 36B(c)(2)(C)(ii)) (§ 4980H(b)). Under
§ 36B(c)(2)(C)(i), coverage under an employer-sponsored plan is affordable to a
particular employee if the employee’s required contribution (within the meaning of
§ 5000A(e)(1)(B)) to the plan does not exceed 9.5 percent of the employee’s household income for the taxable year. Section
4980H(c)(4) provides that a full-time employee with respect to any month is an
employee who is employed on average at
least 30 hours of service per week.4
B. PHS Act Section 2708
PHS Act § 27085 provides that, for
plan years beginning on or after January 1,
2014, a group health plan or group health
insurance issuer shall not apply any
waiting period that exceeds 90 days. PHS
Act § 2704(b)(4), ERISA § 701(b)(4), and
Code § 9801(b)(4) define a waiting period
to be the period that must pass with respect
to an individual before the individual is
eligible to be covered for benefits under
the terms of the plan. In 2004 regulations,6
the Departments defined a waiting period
to mean the period that must pass before
coverage for an employee or dependent
who is otherwise eligible to enroll under
the terms of a group health plan can
become effective.
3

C. Notice 2011–36

D. Notice 2011–73

Public comments were requested and
received on a number of issues and potential approaches to interpreting and applying § 4980H and PHS Act § 2708. In particular, Notice 2011–36, 2011–21 I.R.B.
792, described and requested comments
on a possible approach that would permit employers to use an optional “lookback/stability period safe harbor” to determine whether ongoing (rather than newlyhired) employees are full-time employees
for purposes of § 4980H. The use of this
safe harbor approach would be voluntary.
Under the look-back/stability period
safe harbor method, an employer would
determine each employee’s full-time status by looking back at a defined period
of not less than three but not more than
12 consecutive calendar months, as chosen by the employer (the measurement
period), to determine whether during the
measurement period the employee averaged at least 30 hours of service per week.
If the employee were determined to be a
full-time employee during the measurement period, then the employee would be
treated as a full-time employee during a
subsequent “stability period,” regardless
of the employee’s number of hours of service during the stability period, so long
as he or she remained an employee. For
an employee determined to be a full-time
employee during the measurement period,
the stability period would be a period of at
least six consecutive calendar months that
follows the measurement period and is no
shorter in duration than the measurement
period. If the employee were determined
not to be a full-time employee during the
measurement period, the employer would
be permitted to treat the employee as not
a full-time employee during a stability
period that followed the measurement
period, but the stability period could not
exceed the measurement period. Comments on this approach were favorable.

In Notice 2011–73, 2011–40 I.R.B.
474, Treasury and the IRS described a safe
harbor under which employers would not
be subject to an assessable payment under
§ 4980H(b) with respect to an employee
if the coverage offered to that employee
was affordable based on the employee’s
Form W–2 wages (as reported in Box 1)
instead of household income. Under the
safe harbor, an employer would not be
subject to a penalty under § 4980H(b) with
respect to an employee if the required contribution for that employee was no more
than 9.5 percent of the employee’s Form
W–2 wages. The proposed affordability
safe harbor would apply only for purposes
of determining whether an employer is
subject to the assessable payment under
§ 4980H(b). For example, the safe harbor
would not affect an employee’s eligibility
for a premium tax credit under § 36B.
Treasury and the IRS requested and received comments on the safe harbor, and
the comments were generally favorable.
Subsequently, Notice 2012–17, 2012–9
I.R.B. 4307, stated that, as described in
Notice 2011–73, Treasury and the IRS intend to issue proposed regulations or other
guidance permitting employers to use an
employee’s Form W–2 wages (as reported
in Box 1) as a safe harbor in determining
the affordability of employer coverage.
E. Notice 2012–17
Notice 2012–17 also described and requested comments on a potential approach
for determining the full-time status of new
employees for purposes of § 4980H if,
based on the facts and circumstances at the
start date, it cannot reasonably be determined whether the new employee is expected to work full-time because the employee’s hours are variable or otherwise
uncertain. Under the potential approach
described in Notice 2012–17, employers
would be given three months or, in certain
cases, six months, without incurring a pay-

Minimum essential coverage is defined in § 5000A(f) of the Code. The definition of “eligible employer-sponsored plan” in § 5000A(f)(2) applies for purposes of § 4980H.

4

For this purpose, proposed regulations are expected to provide (as stated in Notice 2011–36) that 130 hours of service in a calendar month would be treated as the monthly equivalent of 30
hours of service per week.
5 The Affordable Care Act adds section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Code to incorporate the provisions of part A of
title XXVII of the PHS Act into ERISA and the Code, and to make them applicable to group health plans and health insurance issuers providing health insurance coverage in connection with
group health plans. The PHS Act sections incorporated by these references are sections 2701 through 2728. Accordingly, PHS Act § 2708 is subject to shared interpretive jurisdiction by
DOL, HHS, and Treasury.
6

26 CFR 54.9801–3(a)(3)(iii), 29 CFR 2590.701–3(a)(3)(iii), 45 CFR 146.111(a)(3)(iii).

7

Simultaneously with the issuance of Notice 2012–17, DOL and HHS issued parallel guidance. See DOL Technical Release 2012–01 and HHS FAQs issued February 9, 2012.

2012–41 I.R.B.

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October 9, 2012

ment under § 4980H, to determine whether
a variable hour new employee is a full-time
employee.
In response to Notice 2012–17, commenters requested that employers be allowed to use a look-back measurement period of up to 12 months to determine the
status of new variable hour employees,
similar to the method permitted to determine the status of ongoing employees.
F. Revised Approach in This Notice
After considering the comments, Treasury and the IRS are revising the approach
outlined in Notice 2012–17 for new variable hour employees. Treasury and the
IRS anticipate that the revised approach,
which is generally similar to the approach
for ongoing employees, will be a flexible
and workable option for determining the
full-time status of new variable hour employees, and will provide employees and
employers with greater stability and predictability. Treasury and the IRS also are
providing a similar safe harbor for certain seasonal employees and are modifying the rule for ongoing employees to provide greater flexibility by allowing use of
an administrative period, described below,
between the measurement and stability periods. This revised guidance is described
in section III, below.
Note that unless specified otherwise,
all references in this notice to an offer of coverage to an employee refer to
an offer of minimum essential coverage
that is affordable within the meaning of
§ 36B(c)(2)(C)(i) (or is treated as affordable coverage under the Form W–2 safe
harbor described in section II.D of this
notice) and that provides minimum value
within the meaning of § 36B(c)(2)(C)(ii).
Also, whenever this notice states that coverage must be offered to an employee by a
specified date, it means that the offer that
must be made to the employee, if accepted
by the employee, would result in the employee actually receiving coverage that is
effective as of the specified date. Absent
such an offer, the employer may be subject
to an assessable payment under § 4980H.
In addition, unless otherwise specified below, solely for the purpose of the guidance
in this notice, the term “calendar month”
means one of the full months named in
the calendar (such as January, February
or March), and the term “month” means

October 9, 2012

the period from a day in one month to the
prior day of the following month (such as
from January 15 to February 14).
III. DETERMINING FULL-TIME
STATUS OF EMPLOYEES
A. Ongoing Employees: Safe Harbor
For ongoing employees, employers
generally will be permitted to use the safe
harbor method based upon measurement
and stability periods described in Notices
2011–36 and 2012–17. The measurement
period the employer chooses to apply to
ongoing employees is referred to in this
notice as the “standard measurement period.”
An “ongoing employee” is generally an
employee who has been employed by the
employer for at least one complete standard measurement period. As stated in Notice 2011–36, different rules may apply to
employees who move into full-time status
during the year. Additional rules regarding the treatment of employees who experience a change in employment status are
expected to be included in upcoming regulations.
Under the safe harbor method for ongoing employees, an employer determines
each ongoing employee’s full-time status
by looking back at the standard measurement period (a defined time period of not
less than three but not more than 12 consecutive months, as chosen by the employer). The employer has the flexibility
to determine the months in which the standard measurement period starts and ends,
provided that the determination must be
made on a uniform and consistent basis
for all employees in the same category.
(See below in this section for permissible
categories.) For example, if an employer
chose a standard measurement period of
12 months, the employer could choose to
make it the calendar year, a non-calendar
plan year, or a different 12-month period,
such as one that ends shortly before the
start of the plan’s annual open enrollment
season. If the employer determines that
an employee averaged at least 30 hours
per week during the standard measurement
period, then the employer treats the employee as a full-time employee during a
subsequent “stability period”, regardless
of the employee’s number of hours of ser-

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vice during the stability period, so long as
he or she remained an employee.
For an employee whom the employer
determines to be a full-time employee
during the standard measurement period,
the stability period would be a period of at
least six consecutive calendar months that
is no shorter in duration than the standard
measurement period and that begins after the standard measurement period (and
any applicable administrative period, as
discussed in section III.B, below). If the
employer determines that the employee
did not work full-time during the standard
measurement period, the employer would
be permitted to treat the employee as not
a full-time employee during the stability
period that follows, but is not longer than,
the standard measurement period.
Subject to the rules governing the relationship between the length of the measurement period and the stability period,
employers may use measurement periods
and stability periods that differ either in
length or in their starting and ending dates
for the following categories of employees:
(1) collectively bargained employees and
non-collectively bargained employees; (2)
salaried employees and hourly employees;
(3) employees of different entities; and
(4) employees located in different States.
(These categories are adapted from existing regulatory guidance and also reflect
public comments received in response to
Notice 2011–36.) The rules described in
this paragraph apply both to the standard
measurement periods described in this section III.A and the initial measurement periods described below in section III.D.
B. Ongoing Employees: Option to
Use Administrative Period Under Safe
Harbor
Because employers may need time between the standard measurement period
and the associated stability period to determine which ongoing employees are eligible for coverage, and to notify and enroll employees, an employer may make
time for these administrative steps by having its standard measurement period end
before the associated stability period begins. However, any administrative period
between the standard measurement period
and the stability period may neither reduce
nor lengthen the measurement period or
the stability period. The administrative pe-

2012–41 I.R.B.

riod following the standard measurement
period may last up to 90 days. To prevent this administrative period from creating any potential gaps in coverage, it will
overlap with the prior stability period, so
that, during any such administrative period
applicable to ongoing employees following a standard measurement period, ongoing employees who are eligible for coverage because of their status as full-time employees based on a prior measurement period would continue to be offered coverage.
Example
Facts. Employer W chooses to use a 12-month
stability period that begins January 1 and a 12-month
standard measurement period that begins October 15.
Consistent with the terms of Employer W’s group
health plan, only an ongoing employee who works
full-time (an average of at least 30 hours per week)
during the standard measurement period is offered
coverage during the stability period associated with
that measurement period. Employer W chooses to
use an administrative period between the end of the
standard measurement period (October 14) and the
beginning of the stability period (January 1) to determine which employees worked full-time during the
measurement period, notify them of their eligibility
for the plan for the calendar year beginning on January 1 and of the coverage available under the plan,
answer questions and collect materials from employees, and enroll those employees who elect coverage in
the plan. Previously-determined full-time employees
already enrolled in coverage continue to be offered
coverage through the administrative period.
Employee A and Employee B have been employed by Employer W for several years, continuously from their start date. Employee A worked
full-time during the standard measurement period
that begins October 15 of Year 1 and ends October
14 of Year 2 and for all prior standard measurement
periods. Employee B also worked full-time for all
prior standard measurement periods, but is not a
full-time employee during the standard measurement
period that begins October 15 of Year 1 and ends
October 14 of Year 2.
Conclusions. Because Employee A was employed for the entire standard measurement period
that begins October 15 of Year 1 and ends October
14 of Year 2, Employee A is an ongoing employee
with respect to the stability period running from
January 1 through December 31 of Year 3. Because
Employee A worked full-time during that standard
measurement period, Employee A must be offered
coverage for the entire Year 3 stability period (including the administrative period from October 15
through December 31 of Year 3). Because Employee A worked full-time during the prior standard
measurement period, Employee A would have been
offered coverage for the entire Year 2 stability period,

and if enrolled would continue such coverage during
the administrative period from October 15 through
December 31 of Year 2.
Because Employee B was employed for the entire
standard measurement period that begins October 15
of Year 1 and ends October 14 of Year 2, Employee B
is also an ongoing employee with respect to the stability period in Year 3. Because Employee B did not
work full-time during this standard measurement period, Employee B is not required to be offered coverage for the stability period in Year 3 (including the
administrative period from October 15 through December 31 of Year 3). However, because Employee B
worked full-time during the prior standard measurement period, Employee B would be offered coverage
through the end of the Year 2 stability period, and if
enrolled would continue such coverage during the administrative period from October 15 through December 31 of Year 2.
Employer W complies with the standards of this
section because the measurement and stability periods are no longer than 12 months, the stability period
for ongoing employees who work full-time during the
standard measurement period is not shorter than the
standard measurement period, the stability period for
ongoing employees who do not work full-time during
the standard measurement period is no longer than the
standard measurement period, and the administrative
period is no longer than 90 days.

C. New Employees: Reasonably
Expected to Work Full-Time
If an employee is reasonably expected
at his or her start date to work full-time, an
employer that sponsors a group health plan
that offers coverage to the employee at or
before the conclusion of the employee’s
initial three calendar months of employment will not be subject to the employer
responsibility payment under § 4980H by
reason of its failure to offer coverage to the
employee for up to the initial three calendar months of employment. For rules on
compliance with the 90-day waiting period
limitation under PHS Act § 2708, see the
guidance cited at footnote 1.
D. New Employees: Safe Harbor for
Variable Hour and Seasonal Employees
If an employer maintains a group health
plan that would offer coverage to the employee only if the employee were determined to be a full-time employee, the employer may use both a measurement period of between three and 12 months (the
same as allowed for ongoing employees)
and an administrative period of up to 90

days for variable hour and seasonal employees. However, the measurement period and the administrative period combined may not extend beyond the last day
of the first calendar month beginning on or
after the one-year anniversary of the employee’s start date (totaling, at most, 13
months and a fraction of a month). These
periods are described in greater detail below.
1. Initial Measurement Period and
Associated Stability Period
For variable hour and seasonal employees, employers are permitted to determine
whether the new employee is a full-time
employee using an “initial measurement
period” of between three and 12 months
(as selected by the employer). The employer measures the hours of service completed by the new employee during the initial measurement period and determines
whether the employee completed an average of 30 hours of service per week or
more during this period. The stability period for such employees must be the same
length as the stability period for ongoing
employees. As in the case of a standard
measurement period, if an employee is determined to be a full-time employee during the initial measurement period, the stability period must be a period of at least
six consecutive calendar months that is no
shorter in duration than the initial measurement period and that begins after the initial measurement period (and any associated administrative period).
If a new variable hour or seasonal employee is determined not to be a full-time
employee during the initial measurement
period, the employer is permitted to treat
the employee as not a full-time employee
during the stability period that follows the
initial measurement period. This stability period for such employees must not be
more than one month longer than the initial measurement period and, as explained
below, must not exceed the remainder of
the standard measurement period (plus any
associated administrative period) in which
the initial measurement period ends.8
An employee or related individual is
not considered eligible for minimum es-

8

In these circumstances, allowing a stability period to exceed the initial measurement period by one month is intended to give additional flexibility to employers that wish to use a 12-month
stability period for new variable hour and seasonal employees and an administrative period that exceeds one month. To that end, such an employer could use an 11-month initial measurement
period (in lieu of the 12-month initial measurement period that would otherwise be required) and still comply with the general rule that the initial measurement period and administrative
period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date.

2012–41 I.R.B.

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October 9, 2012

sential coverage under the plan (and therefore may be eligible for a premium tax
credit or cost-sharing reduction through an
Exchange) during any period when coverage is not offered, including any measurement period or administrative period prior
to when coverage takes effect.
2. Transition from New Employee Rules
to Ongoing Employee Rules
Once a new employee, who has been
employed for an initial measurement period, has been employed for an entire standard measurement period, the employee
must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same
conditions as other ongoing employees.
Accordingly, for example, an employer
with a calendar year standard measurement period that also uses a one-year initial
measurement period beginning on the employee’s start date would test a new variable hour employee whose start date is
February 12 for full-time status first based
on the initial measurement period (February 12 through February 11 of the following year) and again based on the calendar year standard measurement period (if
the employee continues in employment for
that entire standard measurement period)
beginning on January 1 of the year after the
start date.
An employee determined to be a
full-time employee during an initial measurement period or standard measurement
period must be treated as a full-time employee for the entire associated stability
period. This is the case even if the employee is determined to be a full-time
employee during the initial measurement
period but determined not to be a full-time
employee during the overlapping or immediately following standard measurement
period. In that case, the employer may
treat the employee as not a full-time employee only after the end of the stability
period associated with the initial measurement period. Thereafter, the employee’s
full-time status would be determined in
the same manner as that of the employer’s
other ongoing employees.
In contrast, if the employee is determined not to be a full-time employee during the initial measurement period, but is
determined to be a full-time employee during the overlapping or immediately fol-

October 9, 2012

lowing standard measurement period, the
employee must be treated as a full-time
employee for the entire stability period that
corresponds to that standard measurement
period (even if that stability period begins
before the end of the stability period associated with the initial measurement period). Thereafter, the employee’s full-time
status would be determined in the same
manner as that of the employer’s other ongoing employees.
3. Optional Administrative Period for
New Employees
In addition to the initial measurement
period, the employer is permitted to apply
an administrative period before the start
of the stability period. This administrative period must not exceed 90 days in
total. For this purpose, the administrative period includes all periods between
the start date of a new variable hour or
seasonal employee and the date the employee is first offered coverage under the
employer’s group health plan, other than
the initial measurement period. Thus, for
example, if the employer begins the initial measurement period on the first day of
the first month following a new variable
hour or seasonal employee’s start date, the
period between the employee’s start date
and the first day of the next month must be
taken into account in applying the 90-day
limit on the administrative period. Similarly, if there is a period between the end
of the initial measurement period and the
date the employee is first offered coverage
under the plan, that period must be taken
into account in applying the 90-day limit
on the administrative period.
In addition to the specific limits on the
initial measurement period (which must
not exceed 12 months) and the administrative period (which must not exceed 90
days), there is a limit on the combined
length of the initial measurement period
and the administrative period applicable
for a new variable hour or seasonal employee. Specifically, the initial measurement period and administrative period together cannot extend beyond the last day
of the first calendar month beginning on
or after the first anniversary of the employee’s start date. For example, if an employer uses a 12-month initial measurement period for a new variable hour employee, and begins that initial measure-

440

ment period on the first day of the first
calendar month following the employee’s
start date, the period between the end of
the initial measurement period and the offer of coverage to a new variable hour employee who works full time during the initial measurement period must not exceed
one month.
4. Variable Hour Employee Defined
For purposes of this notice, a new employee is a variable hour employee if,
based on the facts and circumstances at the
start date, it cannot be determined that the
employee is reasonably expected to work
on average at least 30 hours per week. A
new employee who is expected to work
initially at least 30 hours per week may be
a variable hour employee if, based on the
facts and circumstances at the start date,
the period of employment at more than
30 hours per week is reasonably expected
to be of limited duration and it cannot
be determined that the employee is reasonably expected to work on average at
least 30 hours per week over the initial
measurement period. As one example, a
variable hour employee would include a
retail worker hired at more than 30 hours
per week for the holiday season who is
reasonably expected to continue working
after the holiday season but is not reasonably expected to work at least 30 hours per
week for the portion of the initial measurement period remaining after the holiday
season, so that it cannot be determined at
the start date that the employee is reasonably expected to average at least 30 hours
per week during the initial measurement
period.
5. Seasonal Employee Defined
The Affordable Care Act addresses
the meaning of seasonal worker in the
context of whether an employer meets
the definition of an applicable large employer. Specifically, § 4980H(c)(2)(B)
generally provides that if an employer’s
workforce exceeds 50 full-time employees
for 120 days or fewer during a calendar
year, and the employees in excess of 50
who were employed during that period
of no more than 120 days were seasonal
employees, the employer would not be an
applicable large employer. Furthermore,
§ 4980H(c)(2)(B)(ii) provides that, for this

2012–41 I.R.B.

purpose, seasonal worker means a worker
who performs labor or services on a seasonal basis, as defined by the Secretary
of Labor, including (but not limited to)
workers covered by 29 CFR 500.20(s)(1)
and retail workers employed exclusively
during holiday seasons. The statute does
not address how the term “seasonal employee” might be defined for purposes
other than the determination of applicable
large employer status, such as the determination of whether a new employee of an
applicable large employer is reasonably
expected to work full time for purposes of
determining the amount of any assessable
payment under § 4980H. Through at least
2014, employers are permitted to use a
reasonable, good faith interpretation of the
term “seasonal employee” for purposes of
this notice.
E. Examples
The examples that follow illustrate how
the safe harbors described above apply
to variable hour employees and seasonal
employees. For the rules that apply to
full-time new employees, see section III.C,
above. For rules that apply to part-time
new employees, see section IV, example
4, of Notice 2012–59 (issued concurrently
with this notice) interpreting PHS Act
§ 2708.
In all of the following examples, the
coverage offer is an offer of minimum essential coverage that is affordable within
the meaning of § 36B(c)(2)(C)(i) (or is
treated as affordable coverage under the
Form W–2 safe harbor described in section II.D of this notice) and that provides
minimum value within the meaning of
§ 36B(c)(2)(C)(ii).
1. Examples of New Variable Hour
Employees with an Administrative
Period.
In Examples 1 through 8, the new employee is a new variable hour employee,
and the employer has chosen to use a
12-month standard measurement period
for ongoing employees starting October
15 and a 12-month stability period associated with that standard measurement
period starting January 1. (Thus, during
the administrative period from October
15 through December 31 of each calendar year, the employer continues to

2012–41 I.R.B.

offer coverage to employees who qualified for coverage for that entire calendar
year based upon working on average at
least 30 hours per week during the prior
standard measurement period.) Also, the
employer offers health plan coverage only
to full-time employees (and their dependents).
Example 1 (12-Month Initial Measurement Period Followed by 1+ Partial Month Administrative
Period). (i) Facts. For new variable hour employees,
Employer B uses a 12-month initial measurement period that begins on the start date and applies an administrative period from the end of the initial measurement period through the end of the first calendar
month beginning on or after the end of the initial measurement period. Employer B hires Employee Y on
May 10, 2014. Employee Y’s initial measurement period runs from May 10, 2014, through May 9, 2015.
Employee Y works an average of 30 hours per week
during this initial measurement period. Employer B
offers coverage to Employee Y for a stability period
that runs from July 1, 2015 through June 30, 2016.
(ii) Conclusion. Employee Y works an average of
30 hours per week during his initial measurement period and Employer B uses (1) an initial measurement
period that does not exceed 12 months; (2) an administrative period totaling not more than 90 days; and
(3) a combined initial measurement period and administrative period that does not last beyond the final
day of the first calendar month beginning on or after
the one-year anniversary of Employee Y’s start date.
Accordingly, from Employee Y’s start date through
June 30, 2016, Employer B is not subject to any payment under § 4980H with respect to Employee Y, because Employer B complies with the standards for
the initial measurement period and stability periods
for a new variable hour employee. Employer B also
complies with PHS Act § 2708. Employer B must
test Employee Y again based on the period from October 15, 2014 through October 14, 2015 (Employer
B’s first standard measurement period that begins after Employee Y’s start date).
Example 2 (11-Month Initial Measurement Period Followed by 2 + Partial Month Administrative
Period). (i) Facts. Same as Example 1, except that
Employer B uses an 11-month initial measurement
period that begins on the start date and applies an
administrative period from the end of the initial
measurement period until the end of the second
calendar month beginning after the end of the initial
measurement period. Employer B hires Employee Y
on May 10, 2014. Employee Y’s initial measurement
period runs from May 10, 2014, through April 9,
2015. Employee Y works an average of 30 hours
per week during this initial measurement period.
Employer B offers coverage to Employee Y for a
stability period that runs from July 1, 2015 through
June 30, 2016.
(ii) Conclusion. Same as Example 1.
Example 3 (11-Month Initial Measurement Period Preceded by Partial Month Administrative Period and Followed by 2-Month Administrative Period). (i) Facts. Same as Example 1, except that
Employer B uses an 11-month initial measurement
period that begins on the first day of the first calendar month beginning after the start date and applies
an administrative period that runs from the end of

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the initial measurement period through the end of the
second calendar month beginning on or after the end
of the initial measurement period. Employer B hires
Employee Y on May 10, 2014. Employee Y’s initial
measurement period runs from June 1, 2014, through
April 30, 2015. Employee Y works an average of
30 hours per week during this initial measurement
period. Employer B offers coverage to Employee
Y for a stability period that runs from July 1, 2015
through June 30, 2016.
(ii) Conclusion. Same as Example 1.
Example 4 (12-Month Initial Measurement Period Preceded by Partial Month Administrative Period and Followed by 2-Month Administrative Period). (i) Facts. For new variable hour employees,
Employer B uses a 12-month initial measurement period that begins on the first day of the first month
following the start date and applies an administrative
period that runs from the end of the initial measurement period through the end of the second calendar
month beginning on or after the end of the initial measurement period. Employer B hires Employee Y on
May 10, 2014. Employee Y’s initial measurement
period runs from June 1, 2014, through May 31, 2015.
Employee Y works an average of 30 hours per week
during this initial measurement period. Employer B
offers coverage to Employee Y for a stability period
that runs from August 1, 2015 through July 31, 2016.
(ii) Conclusion. Employer B does not satisfy the
standards for the safe harbor method in section III.D
because the combination of the initial partial month
delay, the twelve-month initial measurement period,
and the two month administrative period means that
the coverage offered to Employee Y does not become
effective until after the first day of the second calendar month following the first anniversary of Employee Y’s start date. Accordingly, Employer B is
potentially subject to a payment under § 4980H and
fails to comply with PHS Act § 2708.
Example 5 (Continuous Full-Time Employee). (i)
Facts. Same as Example 1; in addition, Employer
B tests Employee Y again based on Employee Y’s
hours from October 15, 2014 through October 14,
2015 (Employer B’s first standard measurement
period that begins after Employee Y’s start date), determines that Employee Y worked an average of 30
hours a week during that period, and offers Employee
Y coverage for July 1, 2016 through December 31,
2016. (Employee Y already has an offer of coverage
for the period of January 1, 2016 through June 30,
2016 because that period is covered by the initial
stability period following the initial measurement
period, during which Employee Y was determined to
be a full-time employee.)
(ii) Conclusion. Employer B is not subject to any
payment under § 4980H and complies with PHS Act
§ 2708 for 2016 with respect to Employee Y.
Example 6 (Initially Full-Time Employee, Becomes Non-Full-Time Employee). (i) Facts. Same as
Example 1; in addition, Employer B tests Employee
Y again based on Employee Y’s hours from October 15, 2014 through October 14, 2015 (Employer
B’s first standard measurement period that begins
after Employee Y’s start date), and determines that
Employee Y worked an average of 28 hours a week
during that period. Employer B continues to offer
coverage to Employee Y through June 30, 2016
(the end of the stability period based on the initial
measurement period during which Employee Y was

October 9, 2012

determined to be a full-time employee), but does
not offer coverage to Employee Y for the period of
July 1, 2016 through December 31, 2016.
(ii) Conclusion. Employer B is not subject to any
payment under § 4980H and complies with PHS Act
§ 2708 for 2016 with respect to Employee Y, provided
that it offers coverage to Employee Y from July 1,
2015 through June 30, 2016 (the entire stability period associated with the initial measurement period).
Example 7 (Initially Non-Full-Time Employee).
(i) Facts. Same as Example 1, except that Employee
Y works an average of 28 hours per week during the
period from May 10, 2014 through May 9, 2015 and
Employer B does not offer coverage to Employee Y in
2015. Employer B tests Employee Y again based on
Employee Y’s hours from October 15, 2014 through
October 14, 2015 (Employer B’s first standard measurement period that begins after Employee Y’s start
date).
(ii) Conclusion. From Employee Y’s start date
through the end of 2015, Employer B is not subject
to any payment under § 4980H, because Employer B
complies with the standards for the measurement and
stability periods for a new variable hour employee
with respect to Employee Y. PHS Act § 2708 does not
apply to Employee Y during this period because, pursuant to the plan’s eligibility conditions, Employee Y
does not become eligible during this period for coverage under the plan. Accordingly, Employer B also
complies with PHS Act § 2708 with respect to Employee Y during this period.
Example 8 (Initially Non-Full-Time Employee,
Becomes Full-Time Employee). (i) Facts. Same
as Example 7; in addition, Employer B tests Employee Y again based on Employee Y’s hours
from October 15, 2014 through October 14, 2015
(Employer B’s first standard measurement period
that begins after Employee Y’s start date), determines
that Employee Y works an average of 30 hours per
week during this standard measurement period, and
offers coverage to Employee Y for 2016.
(ii) Conclusion. Employer B is not subject to any
payment under § 4980H and complies with PHS Act
§ 2708 for 2016 with respect to Employee Y.

2. Examples of New Variable Hour
Employees with an Administrative Period
and Six-Month Standard Measurement
Period and Stability Period.
In Examples 9 and 10, the new employee is a new variable hour employee,
and the employer uses a six-month standard measurement period, starting each
May 15 and November 15, with six-month
stability periods associated with those
standard measurement periods starting
January 1 and July 1.
Example 9. (i) Facts. For new variable hour employees, Employer C uses a six-month initial measurement period that begins on the start date and applies an administrative period that runs from the end
of the initial measurement period through the end of
the first full calendar month beginning after the end
of the initial measurement period. Employer C hires
Employee Z on May 10, 2014. Employee Z’s initial measurement period runs from May 10, 2014,

October 9, 2012

through November 9, 2014, during which Employee
Z works an average of 30 hours per week. Employer
C offers coverage to Employee Z for a stability period that runs from January 1, 2015 through June 30,
2015.
(ii) Conclusion. Employer C uses (1) an initial
measurement period that does not exceed 12 months;
(2) an administrative period totaling not more than 90
days; and (3) a combined initial measurement period
and administrative period that does not last longer
than the final day of the first calendar month beginning on or after the one-year anniversary of Employee
Z’s start date. From Employee Z’s start date through
June 30, 2015, Employer C is not subject to any payment under § 4980H, because Employer C complies
with the standards for the measurement and stability
periods for a new variable hour employee with respect to Employee Z. Employer C also complies with
PHS Act § 2708. Employer C must test Employee
Z again based on Employee Z’s hours during the period from November 15, 2014 through May 14, 2015
(Employer C’s first standard measurement period that
begins after Employee Z’s start date).
Example 10 (Initially Full-Time Employee, Becomes Non-Full-Time Employee). (i) Facts. Same as
Example 9; in addition, Employer C tests Employee
Z again based on Employee Z’s hours during the period from November 15, 2014 through May 14, 2015
(Employer C’s first standard measurement period that
begins after Employee Z’s start date), during which
period Employee Z works an average of 28 hours per
week. Employer C continues to offer coverage to Employee Z through June 30, 2015 (the end of the initial
stability period based on the initial measurement period during which Employer C worked an average of
30 hours per week), but does not offer coverage to
Employee Z from July 1, 2015 through December 31,
2015.
(ii) Conclusion. Employer C is not subject to any
payment under § 4980H and complies with PHS Act
§ 2708 with respect to Employee Z for 2015.

3. Example of Seasonal Employee
Example 11 (12-Month Initial Measurement Period; 1+ Partial Month Administrative Period). (i)
Facts. Employer D offers health plan coverage only
to full-time employees (and their dependents). Employer D uses a 12-month initial measurement period
for new variable hour employees and seasonal employees that begins on the start date and applies an
administrative period from the end of the initial measurement period through the end of the first calendar
month beginning after the end of the initial measurement period. Employer D hires Employee S, a ski instructor, on November 15, 2014 with an anticipated
season during which Employee S will work running
through March 15, 2015. Employer D determines
that Employee S is a seasonal employee based upon
a reasonable good faith interpretation of that term.
Employee S’s initial measurement period runs from
November 15, 2014, through November 14, 2015.
Employee S works 60 hours per week from November 15, 2014 through March 15, 2015, but is not reasonably expected to average 30 hours per week for the
12-month initial measurement period. Accordingly,
Employer D does not treat Employee S as a full-time
employee, and does not offer Employee S coverage.

442

(ii) Conclusion. Employer D uses (1) an initial
measurement period that does not exceed 12 months;
(2) an administrative period totaling not more than
90 days; and (3) a combined initial measurement period and administrative period that does not extend
beyond the final day of the first calendar month that
begins on or after the one-year anniversary of an employee’s start date. Accordingly, from Employee S’s
start date through November 14, 2015, Employer D
is not subject to any payment under § 4980H, because
Employer D complies with the standards for the initial measurement period and stability periods for a
new seasonal employee with respect to Employee S.
PHS Act § 2708 does not apply to Employee S during this period because, pursuant to the plan’s eligibility conditions, Employee S does not become eligible
during this period for coverage under the plan. Accordingly, Employer D also complies with PHS Act
§ 2708 with respect to Employee S during this period.

IV. RELIANCE
For compliance with § 4980H at least
through the end of 2014, employers may
rely on (1) the safe harbor method for ongoing employees described in section III.A
and B, above; (2) the rule for new employees reasonably expected to work full-time
described in section III.C, above, (3) the
safe harbor method for new variable hour
and seasonal employees described in section III.D, above, and (4) the safe harbor
based on Form W–2 wages described in
Notice 2011–73 and Notice 2012–17. Employers will not be required to comply with
any subsequent guidance on these issues
that is more restrictive until at least January 1, 2015.
This reliance covers a measurement period that begins in 2013 or 2014 and the
associated stability period (which may extend into 2014, 2015 or 2016). For example, the use of a 12-month measurement
period in accordance with this notice beginning on July 1, 2013 and ending on
June 30, 2014 might be used to classify
employees for a stability period that runs
from July 1, 2014 through June 30, 2015.
In addition, as stated earlier, use of any of
the safe harbor methods described in this
notice is not required, but rather is optional
for all employers.
V. PUBLIC COMMENTS
Treasury and the IRS intend that upcoming regulations on the employer
shared responsibility provisions under
§ 4980H will address the issues described
in this notice, including the specific issues
identified below, in addition to other aspects of § 4980H.

2012–41 I.R.B.

As part of the efforts to develop workable and flexible rules on the application
of § 4980H, with extensive input from
stakeholders, Treasury and the IRS have
issued several notices describing potential approaches to interpreting § 4980H
and requesting public comments. In response, numerous helpful comments have
been received and reviewed. Those comments continue to be considered and taken
into account in the process of formulating regulations and other administrative
guidance that stakeholders will be able to
rely on. Among the specific issues currently under consideration with respect to
the identification of full-time employees
under § 4980H are the following:
1.

2.

3.

4.

Whether and, if so, what types of safe
harbor methods should be available to
employers for use in determining the
full-time status of short-term assignment employees, temporary staffing
employees, employees hired into
high-turnover positions, and other
categories of employees that may
present special issues?
Whether to develop additional guidance (such as relevant factors or
safe harbors) to assist employers and
employees in determining, as of an
employee’s start date, whether the
employee is reasonably expected to
work an average of at least 30 hours
per week, including whether the employee is a variable hour employee. If
so, what types of factors or safe harbors should apply for this purpose?
What rules should be provided to address coordination of differing measurement and stability periods during
the transition following a merger or
acquisition?
How the term “seasonal worker”
should be defined under § 4980H, including: (a) the practicability of using
different definitions for different purposes (such as status as an applicable
large employer or, with respect to an
applicable large employer, status of a
new employee as full-time); and (b)
whether other, existing legal definitions should be considered in defining

a seasonal worker under § 4980H
(such as the safe harbor for seasonal
employees in the final sentence of
Treas. Reg. § 1.105–11(c)(2)(iii)(C)).
In view of the anticipated timing
of regulations and other guidance that
stakeholders will be able to rely on, it is
requested that those who wish to submit
any further comments on these or other
issues relating to this notice do so by
September 30, 2012. Comments should
include a reference to Notice 2012–58.
Send submissions to CC:PA:LPD:PR
(Notice 2012–58), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Monday through Friday between the hours
of 8 a.m. and 4 p.m. to CC:PA:LPD:PR
(Notice 2012–58), Courier’s Desk,
Internal
Revenue
Service,
1111
Constitution Avenue, NW, Washington,
DC 20044, or sent electronically,
via the following e-mail address:
Notice.comments@irscounsel.treas.gov.
Please include “Notice 2012–58”
in the subject line of any electronic
communication. All material submitted
will be available for public inspection and
copying.
VI. NO INFERENCE
No inference should be drawn from any
provision of this notice concerning any
other provision of § 4980H or any other
provision of the Affordable Care Act.
VII. DRAFTING INFORMATION
The principal author of this notice is
Mireille Khoury of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). For
further information regarding this notice,
contact Ms. Khoury at (202) 622–6080
(not a toll-free call).

Guidance on 90-day Waiting
Period Limitation Under Public
Health Service Act Section
2708
Notice 2012–59
I. INTRODUCTION
The Departments of Labor, Health and
Human Services (HHS), and the Treasury
(the Departments) are working together
to develop coordinated regulations and
other administrative guidance to assist
stakeholders with implementation of the
Patient Protection and Affordable Care
Act (Affordable Care Act). This notice,
which is being issued in substantially identical form by the other two Departments,
provides temporary guidance regarding
the 90-day waiting period limitation in
Public Health Service Act (PHS Act) section 2708.1 The guidance will remain in
effect at least through the end of 2014.
In addition, the Treasury Department,
including the Internal Revenue Service
(IRS), is concurrently issuing a notice
providing administrative guidance on the
shared responsibility of employers under
section 4980H of the Internal Revenue
Code (Code). See IRS Notice 2012–58.
That guidance has been coordinated with
the Departments of Labor and HHS and
with the guidance contained in this notice.
II. BACKGROUND
PHS Act section 2708 provides that,
for plan years beginning on or after January 1, 2014, a group health plan or health
insurance issuer offering group health
insurance coverage shall not apply any
waiting period that exceeds 90 days.2 PHS
Act section 2704(b)(4), ERISA section
701(b)(4), and Code section 9801(b)(4)
define a waiting period to be the period
that must pass with respect to an individual before the individual is eligible to be
covered for benefits under the terms of
the plan. In 2004 regulations, the Departments defined a waiting period to mean
the period that must pass before coverage

1

The Affordable Care Act adds section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Internal Revenue Code (Code) to incorporate the
provisions of part A of title XXVII of the PHS Act into ERISA and the Code, and to make them applicable to group health plans and health insurance issuers providing health insurance
coverage in connection with group health plans. The PHS Act sections incorporated by these references are sections 2701 through 2728. Accordingly, PHS Act section 2708 is subject to
shared interpretive jurisdiction by the Departments.

2

PHS Act section 2708 applies to both grandfathered and non-grandfathered plans. See section 1251(a)(4)(A)(i) of the Affordable Care Act.

2012–41 I.R.B.

443

October 9, 2012