Is healthcare required for full-time substitute teachers?

An IRS "shared responsibility" rule is open to interpretation
By: | Issue: July, 2015
June 12, 2015

An enforcement agency writes a rule to solve a specific problem. Applied to other situations, the rule makes less sense.

Will the agency restrict enforcement to those situations clearly referenced in the rule or will the agency enforce the rule more broadly? Among Affordable Care Act watchers, this is a common question.

Parsing the rule

Here’s an example. Do the IRS Employer Shared Responsibility Cost final rulesconvert substitutes into full-time teachers for employer mandate purposes?

Suppose the Metropolis School District hires long-time substitute Sarah to replace Martha during Martha’s six-week maternity leave and credits Sarah with 280 hours of service.

Martha then returns and Sarah is off work for 10 weeks. At the end of those 10 weeks, the district looks back and measures its part-time and variable-hour employees to determine whom it must treat as full-time. Sarah averaged just 10.77 weekly hours during the measurement period. How could she be considered full-time?

The 10 weeks met the ESRC rule’s definition of employment break period: “The term employment break period means a period of at least four consecutive weeks (disregarding special unpaid leave), measured in weeks, during which an employee of an educational organization is not credited with hours of service for an applicable large employer.”

OK, but this is talking only about summer breaks, right? Not so fast.

Because Sarah’s 10 weeks off fell short of 26 consecutive weeks, the district could not treat Sarah as a new hire upon resumption of services in week 11. So, it calculates her average weekly hours of service during the measurement period.

The hours-of-service averaging rule for school employees reads this way:

“[A]n educational organization employer determines the employee’s average hours of service for a measurement period by computing the average after excluding any special unpaid leave and any employment break period during the measurement period. Alternatively … the employer may choose to treat the employee as credited with hours of service for any periods of special unpaid leave and any employment break period during that measurement period at a rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not part of the period of special unpaid leave or an employment break period. Notwithstanding the preceding two sentences, no more than 501 hours of service during employment break periods in a calendar year are required to be excluded (under the first sentence) or credited (under the second sentence) by an educational organization, provided that this 501-hour limit does not apply to … special unpaid leave.”

The same section explains that if the measurement period is shorter than six months, the calculation may be based on the six months ending on the last day of the period. The only textual reference to substitute teachers is implied, maybe, in the preamble’s note that teacher unions favored the rule because it in part protects them by, “curbing employer actions to prevent employees from attaining full-time employee status.”

Ulterior motives?

Maybe that signals an IRS intent to force schools to treat genuine substitutes as full-time for this purpose to reduce the incentive to hire more subs and fewer regular teachers. But it seems that only substitutes needing more than 501 hours of measurement period boost will fall short of full-time status.

Thirty weekly average hours of service over a 26-week measurement period equals 780. When you subtract 501, a substitute teacher may earn full-time status with only 279 hours of service. Sarah had 280.

We’re not predicting the IRS will enforce the rule this way in this circumstance. But we don’t see why it couldn’t. School districts beware.

R. Pepper Crutcher, Jr., is a labor and employment attorney with Balch & Bingham LLP’s Affordable Care Act Strategists Practice Group. He regularly advises businesses, schools and other entities on their obligations under the Affordable Care Act.