It is not uncommon for employers in some industries and localities to occasionally rehire a previously terminated employee. Should such a situation occur, you may wonder how to properly handle the waiting period typically imposed on new hires preceding their eligibility for health care benefits. The answer depends on the status of your organization under the Affordable Care Act (ACA).
For example, you are a smaller business not subject to the ACA’s employer shared-responsibility provision and you sponsor a group health plan under which full-time employees are eligible for coverage after a 90-day waiting period. (That is the maximum duration allowed under the ACA).
Generally, former employees who are terminated and rehired may be treated as newly eligible for coverage upon rehire. This means that your plan may require such individuals to meet the plan’s eligibility criteria and satisfy the plan’s waiting period anew.
But regulations specify that imposition of the waiting period must be reasonable under the circumstances. For example, the termination and rehire cannot be a subterfuge to avoid compliance with the 90-day waiting period limitation.
The regulations do not elaborate on what is required for a new waiting period upon rehire to be “reasonable under the circumstances” and not a “subterfuge.” They do, however, include an example in which the terminating employee had “no expectation of providing further services” and the gap between the termination date and the rehire date was approximately three months.
Under that scenario, the regulations permit the employee to be treated as newly eligible for coverage under the plan upon rehire, allowing the imposition of the plan’s waiting period. This suggests that there should not be a prearranged understanding that the terminating employee will return to employment.
In addition, there should be a sufficient period between the termination date and the rehire date. For instance, applying a new waiting period to an employee who terminates on a Friday and is rehired on the following Monday likely would not be considered reasonable under the circumstances.
Applicable large employers (ALEs) that are subject to the ACA’s employer shared-responsibility provision should keep in mind that the rules for ALEs require some returning employees to be deemed continuing employees even after relatively lengthy absences.
Thus, even though the waiting period rules may allow a new waiting period for a rehired employee, implementing a waiting period for an employee who must be treated as a continuing full-time employee under the ACA’s “play or pay” provision could expose an ALE to penalties.
Not every termination is forever. Many industries have skilled labor shortages and busy seasons that may drive an employer to rehire an employee who was recently let go. Our team of audit and assurance experts can provide you with information on how to stay in compliance when reintegrating such employees into your health care benefits program. Contact us to see how we can help you.