May we classify a salaried employee as a part-time employee?

[Peter Gulia]

A charitable organization's executive director has a written employment agreement. It provides a salary of $120,000 a year, payable as $10,000 a month. The agreement has no specified work hours. The agreement obligates the executive director to devote reasonable efforts to the employer's interests, subject to an obligation to work no more than 1,248 hours a year or 24 hours a week.

For the purposes of not attracting the Affordable Care Act's play-or-pay excise tax, is it proper to classify this employee as part-time?

[GMK]

I would think that if you have records that show that she/he actually worked less than 30 hours a week, you could claim part-time.

For example, if the salaried people keep track of (and report) the time they spend on different projects for "costing" purposes, you would have a record of their hours of work per week.

[Peter Gulia]

The agreement obligates the employee only to put in reasonable efforts. Even if the agreement requires the employee to make records of her hours worked (for the limited purpose of showing that she met her obligation to work no more than 24 hours a week), those records could not be meaningfully different from the employee's statement that she did not breach her employment agreement. No other employee of the employer has the same work location as the executive director.

Does the employer act in good faith if it relies on a presumption that the executive director did not breach her agreement?

[GMK]

FWIW, I would accept a written certification from the executive director that she did not work more than 30 hours a week, but I think it's a stretch to presume that she did not. No one would be surprised if she was working day and night to promote and direct the wonderful charity.

[david rigby]

Peter, does the possible existence of a qualified plan [ie, under IRC 401(a)] have any bearing on the nature of ER recordkeeping? For example, plan eligibility and vesting (and perhaps benefit accrual) will be based on 1000+ hours in a plan year. It might be prudent for the ER to maintain some type of hours record for any (and all) PT employees. (Agreed, this could be moot if the ER "errs" in the direction of the employEE by your presumption.)

[Peter Gulia]

GMK and David Rigby, thank you for the helpful ideas.

This employer's retirement plan provides immediate eligibility and immediate vesting, and has no provision that refers to hours of service.

But the employer is unwilling to adopt a group health plan because there is no plan it could adopt that would not disadvantage the other employees. The other employees want the absence of any employer's offer of health coverage so that an individual may qualify for an exchange's premium credit and cost-sharing subsidies.

[jpod]

Why are you focusing on the one employee - the executive director - and not all the other employees? If there is no health plan at all, then there must be less than 50 FTEs, so what difference does it make if the XD is full time or not?

[Peter Gulia]

The employer has a few hundred part-time employees with combinations of hours that result in more than 50 full-time-equivalent employees.

The employer cares about classifying the executive director as not a full-time employee within the meaning of IRC 4980H©(4) because the employer prefers to avoid exposure to the play-or-pay excise tax.