Are Your Summer Interns ACA-Eligible?

The summer internship is a time-honored tradition, meant to give undergraduate and graduate students practical work experience while employers simultaneously get exposure to a new pool of willing and able recruits. The Internal Revenue Service (IRS) does place limitations on unpaid internships, but too often the issue of benefits eligibility gets overlooked. When interns are not tracked closely, it can create significant liability for employers.

The Affordable Care Act (ACA) defines a full-time employee as someone working 30 hours or more per week and does not make an exception for interns.

Tony Alberico, senior vice president at Forest Financial Group Inc., counsels his firm’s clients “that if the interns are paid and scheduled to work for greater than 30 hours per week, [they] would generally be eligible for coverage.” Alberico acknowledged that many clients have found this very surprising but have started to think of interns like regular employees when it comes to benefits. HR professionals should also be checking Summary Plan Descriptions and Certificates of Coverage with insurance carriers to make sure that all definitions of eligibility are consistent.

The ACA does provide for two safe harbor exceptions to the benefits eligibility criteria outlined here: seasonal employees and variable-hour employees. Seasonal employees under the ACA follow the Department of Labor definition, meaning that they generally begin work at the same time every year and their employment is seasonal in nature. As the name implies, variable-hour employees have changeable weekly hours with no expectation of consistency. If employees fall into one of these two categories, the law allows them to be placed into a measurement period for determining benefits eligibility. This means that if they work over 30 hours in a single week, but do not average 30 hours a week over the duration of the measurement period, they remain ineligible to receive benefits.

The ACA also requires that employers with 100 or more full-time equivalent employees offer insurance to 70 percent of their full-time employees starting this year, a requirement known colloquially as the employer mandate. Next year, the requirement increases to 95 percent of full-time employees. Small employers with between 50-99 employees have until 2016. Businesses that don’t comply with the employer mandate will face penalties, assessed through newly introduced IRS reporting requirements. “Employers are allowed to exclude interns as a class when calculating the percentage of employees offered benefits but that leaves them susceptible to a penalty if interns receive subsidized coverage through an exchange,” said Alberico.

SHRM Online offers the following practical tips to ensure that your internships are structured in a compliant manner:

• If you intend to define interns as seasonal employees, clearly state that in their offer letters and make sure that their actual employment follows suit.
• Work closely with your broker and legal counsel to ensure internships are compliant. The ACA regulations around benefits eligibility are complex and amendments are still being issued, so it’s important to have expert counsel in making sure that your company’s HR practices are on point.
• Monitor the work and hours of interns closely and remember that they should not be considered a long-term substitute for hiring regular employees.

Many HR professionals may be surprised to learn that interns could even be considered eligible for 401(k) participation. The key in understanding this liability is a close read of your plan documents.Even if your handbook states that temporary employees and interns cannot contribute, you must operate in compliance with your plan adoption agreement.

“There are excludable classes of employees, but an intern who works over 1,000 hours and is at least 21 would generally be eligible to participate,” said Andrew Prevost, president of Meltzer Group Retirement Plan Services. He further recommends that the eligibility and enrollment process be automated as much as possible through the provider, who can then share liability for tracking data. “Having a consultant or broker with an [Employee Retirement Income Security Act] attorney on staff is also really important. Ultimately, your plan provider is going to put responsibility for compliance back on you as the sponsor,” he said.

If your internship offers have already been extended, consider issuing amended offer letters that take note of the tips mentioned here. You should also have a communication plan in place should any of your interns actually become benefits-eligible. With recent class action lawsuits from interns gaining media attention, now is definitely the time to review your company’s policies.

Amy Gulati, SHRM-SCP, is a freelance writer based in the Washington, D.C., area.

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