The term “intern” is a common word which most everyone understands is a person who works (sometimes unpaid) for a temporary period of time for a company. The classification of “intern” however, is not something recognized by the ACA. They are not defined for ACA purposes. Rather, for an Applicable Large Employer (ALE) to avoid exposure to the employer shared responsibility penalties, all their W-2 employees should be classified on their start date as either full-time (FT), part-time (PT), variable hour (VH), or seasonal depending on the facts and offered benefits accordingly.
Can’t an intern just be classified as seasonal?
Although it is true, the ACA does not require an ALE to offer coverage to a “seasonal” employee, seasonal is not synonymous with ‘intern’ so it is imperative to understand how the ACA defines seasonal, to avoid exposure to penalties.
Per Treas. Reg. 54.4980H-1(a)(38) the term seasonal employee means “an employee who is hired into a position for which the customary annual employment is six months or less”.
“Customary” means “that by the nature of the position an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter” [Emphasis added].
- Ski resort instructor hired each year from November until March
- A cattle ranch who hires extra ranch hands during foaling season, April – Sept.
However, there are no special pay or play rules for internships. Therefore, when deciding how to classify an “intern”, a key part of the seasonal definition that needs to be considered is “approximately the same part of the year”.
An employer who only hires temporary, full-time positions (i.e. interns) at a specific time of the year (e.g., summer) and they work for less than six months, it may be possible to classify them as seasonal. However, an employer who hires interns at various times of the year, those interns may not satisfy the seasonal definition.
Why does it matter?
An ALE mislabeling their interns as seasonal and not offering coverage for any month in which they were required to be treated as full-time, may face ACA non-compliance penalties. i.e. If the interns are less than 5% of the employee population, $338.33 per month, the §4980H(b) penalty in 2021. If they make up over 5%, there is exposure to the §4980H(a) penalty, 1/12($2,700) per month x total number of full-time employees minus 30.
It is possible under the right circumstances for an intern to be seasonal, however, an intern is not synonymous with a seasonal employee.
If interns are hired with the intent to work 30 or more hours a week on average, then they are full-time employees, even if their employment is temporary. Thus, for an ALE to avoid a shared responsibility penalty, they would need to be offered ACA compatible coverage after the applicable waiting period, but no later than their 91st day of employment.
Options to Consider
- Exclude interns from coverage (if they make up fewer than 5% of the employer’s full-time population) and accept the risk exposure to the §4980H(b) penalty for any month in which the intern is required to be treated full-time.
- Offer interns the same coverage as permanent, full-time employees. (Many interns, if they are college students may be on their parent’s insurance and are uninterested in paying for their own coverage.)
- Establish a separate class for interns with a longer waiting period than the permanent, full-time employees (e.g., the 91st date of employment) with the intent of the intern not working longer than 90 days and never becoming eligible for benefits.*
*Note: This option requires carrier approval (some carrier’s systems are not set up to handle mid-month enrollment, nor prorate premiums) and the employer would want to continue to perform applicable nondiscrimination testing to ensure it doesn’t negatively affect the testing.
FT, PT, VH, or seasonal are the only classification options for ACA purposes. Mis-classifying an intern (i.e. failing to treat them as FT for ACA purposes) may expose an ALE to ACA penalties.
The Compliance Rundown is not a law firm and cannot dispense legal advice. Anything contained in this post or on their website is not and should not be construed as legal advice. If you need legal advice, please contact your legal counsel.