ACA's Rehire Rules Explained

The Affordable Care Act (ACA) brought with it a set of rules for dealing with the rehiring of employees after an initial termination of employment. Applicable Large Employers (ALEs) must consider and adhere to the rehire rules under the employer mandate to avoid any penalties. This quick overview will outline what these rehire rules are, when they apply to you, and what steps you must take to ensure you're compliant with ACA guidelines when an employee is rejoining your organization.

The Importance of The ACA’s Rehiring Rules

The rehire rules are critical to understand because they will directly impact whether an Applicable Large Employer can apply another waiting period and limited non-assessment period for a rehired employee. The limited non-assessment period can only apply once for each employee's period of employment. Therefore, if an employee stops working and then returns, the employer needs to determine whether the employee is considered to be either a “continuing employee” or a “terminated and rehired employee.”

The ACA comes with many provisions that apply specifically to Applicable Large Employers (employers that have a minimum of 50 full-time employees, full-time equivalent (FTE) employees, or some combination of both categories.). Failure to adhere to these provisions will make your organization liable to pay penalty fees.

Classifying Rehires under the ACA

An employee will be considered to be a terminated and rehired employee if the employee has a period of 13 consecutive weeks during which the employee is not credited with an hour of service. Basically, this means that if the employee is gone longer than 13 weeks with no hours worked, the employer can apply another limited-non assessment period (i.e., period of 3 months after EE’s date of hire where an employer doesn’t have to offer coverage). For educational organizations, this period is increased to 26 consecutive weeks due to scheduled academic breaks throughout the year.

If an employee is rehired after this 13-week (or 26-week) break in service, they are considered a new hire. As such, they will once again be subject to any waiting period rules your organization has in place before a new hire is eligible for a health plan.

On the other hand, a rehired employee will be considered a continuing employee if they are credited with an hour of service within 13 consecutive weeks. In this instance, the employer must either re-enroll them the first day the employee is credited with an hour of service upon their return, or credit them no later than “administratively practicable,” generally known as the first day of the calendar month following the resumption of their employment.

How the Rule of Parity Affects ACA’s Rehires

There is one further consideration that ALEs want to consider when classifying their rehires under the ACA: the Rule of Parity.

This rule states that an employer is eligible to treat a returning employee as a rehire even if their absence was less than the 13 weeks normally required for them to be classified as terminated (26 weeks in the case of educational institutions). 

This rule can only take effect if:

1. An employee worked a minimum of four weeks as a new employee.

2. This employee’s absence of service was greater than their period of active service immediately preceding the period with no hours of service.

   
   

For example, if an employer uses a 4-week rule of parity, an employee who works 5 weeks and then has no credited hours for 6 weeks may be treated as a new employee upon their rehiring.

This situation calls for a new waiting period to be imposed before the resumption of this employee’s health insurance. The rule of parity is the only exception that allows an employer to treat an employee as terminated following absences shorter than 13 weeks (or 26 weeks for educational institutions).

A few more details to note:

• You are only liable for providing coverage if the rehired employee activated their coverage prior to their termination of service. If coverage was offered but declined, you are not liable to immediately offer coverage upon that employee’s return.

• Your organization is not responsible for providing retroactive coverage to fill in the gaps of the period when the employee was not employed.

The Cost of Noncompliance with the ACA

Staying in compliance with the ACA's Employer Mandate is critical for any employer that wants to avoid fines, especially with penalties for noncompliance having increased in 2024.

One of the penalties in particular, the 4980H(a) Penalty, is issued when an employer fails to provide the minimum essential coverage to at least 95% of their full-time employees and dependents. With the 2024 increase, the fine for violation is $2,970/year, or $247.50/month, per employee. Because the criteria for this includes proper identification of and providing coverage to full-time employees, this penalty applies to proper handling of the ACA's rehire rules.

Therefore, employers should review written policies, SPDs and practices to ensure the ACA’s rehire rule isn’t overlooked, especially during times of temporary layoffs, furloughs and terminations. If keeping a handle on these is an issue for your organization, contact the experts at Benefits Compliance Solutions today to streamline the process and help ensure your business is always in compliance with federal rules.