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How Does a Layoff Affect Form 1094/1095 Information Reporting for Full-Time Employees Under the Lookback Measurement Method?

EBIA  

EBIA  

QUESTION: We are an applicable large employer (ALE) that uses the lookback measurement method to identify full-time employees for purposes of the employer shared responsibility rules. Our standard stability period is the calendar year. Due to COVID-19, we laid off some full-time employees during the summer. How do we treat them for Form 1094/1095-C reporting?

ANSWER: Accurate Form 1094/1095-C reporting hinges on properly identifying full-time employees. This may be particularly challenging when an employer has implemented COVID-19-related layoffs.

Under the lookback measurement method, an employee credited with full-time hours during a standard measurement period generally must be treated as a full-time employee during the entire standard stability period that corresponds to the measurement period. Full-time status is retained so long as employment continues during the stability period, regardless of hours worked during the stability period. (A reduction in hours may affect the employee’s full-time status for the following stability period.)

If an employee terminates employment during the stability period, then the employee loses full-time status as of the employment termination date. Thus, it is very important to consider whether an employee who is absent from work has experienced a termination of employment or is on an unpaid leave of absence. If an employee is on an unpaid leave of absence and employment is not terminated, then the employee’s full-time status continues during the leave. Some employers distinguish between layoffs (which they treat as a termination of employment) and furloughs (which they treat as a form of unpaid leave without a termination of employment). However, the label attached to the employment action is not determinative. You should carefully document the employment action. Also, if you treat the layoff as a termination of employment, your treatment should be consistent for all employment purposes (e.g., COBRA notices and unemployment claims).

If a terminated full-time employee is rehired within a specified period of time (generally, 13 weeks), then the employee must be treated as a continuing employee, and full-time status must be restored upon resumption of service. If the continuing employee was enrolled in health coverage before the period of absence, you should offer re-enrollment in the coverage no later than the first of the month following resumption of services. (If the employee previously declined enrollment in coverage for the entire stability period, you need not renew the offer of coverage upon the employee’s rehire.)

An employee who resumes work after an absence of more than 13 weeks generally may be treated as a new employee, and status as full-time or part-time would be determined under the rules for new employees.

Once you determine the months when employees are full-time employees, then the Form 1094/1095-C reporting should reflect those determinations. For example, if you determine that laid-off employees experience a termination of employment, then you will not treat those employees as full-time employees for months during the layoff. This will affect reporting on Part III of Form 1094-C and line 16 of Form 1095-C.

For more information, see EBIA’s Form 1094/1095 Workbook at Sections VI.E (“Total Full-Time Employees”) and VIII.C (“Completing Form 1095-C”). See also EBIA’s Health Care Reform manual at Sections XXVIII.C (“Penalty Tax Hinges on Whether Employer Offers Coverage to Full-Time Employees”) and XXXVI.D (“Information Reporting of Employer-Sponsored Coverage (Applicable Large Employers)”). You may also be interested in our upcoming webinar “Form 1094/1095 Reporting for 2020” (live on 12/10/20).

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