Many small businesses rely on part-time employees to help them operate efficiently. They don’t require full-time employees, at least not for all positions. As companies re-open after the pandemic, or are operating now with part-timers, be sure to understand the rules for what benefits you are required to provide to these workers as well as those you might consider offering even though not required.
Who is a part-timer? It used to be up to employers to fix this status based on the number of hours worked, with many setting a minimum of 20 hours per week as the schedule for part-timers. The Fair Labor Standards Act, which is the law governing minimum wage and overtime rules, doesn’t have a set standard, but overtime rules don’t apply until an employee works more than 40 hours in a workweek.
The Bureau of Labor Statistics speaks of part-timers as those working one to 34 hours per week. Part-timers have always been included in figuring your workers compensation and unemployment tax. But now various federal laws refer to part-time workers and require employers to take them into account.
Affordable Care Act
Under the Affordable Care Act (ACA), the employer mandate requires applicable large employers (ALE) to offer health coverage or pay a penalty (although the constitutionality of this is now before the U.S. Supreme Court). An ALE is an employer with at least 50 full-time and full-time equivalent employees. Thus, in making the determination, businesses must count part-timers. For ACA purposes, a full-time employee is anyone working at least 30 hours per week (or at least 130 hours per month). So a part-timer is anyone working fewer hours. Part-timers become full-time equivalents by adding up their hours (but not more than 120 per worker per month) and then dividing the total by 120.
Note that even if part-timers make a company an ALE, health coverage is only mandated for full-time employees. Of course, employers are free to offer coverage to part-timers.
Mandatory Paid Sick and Family Leave
The Families First Coronavirus Response Act requires small businesses (fewer than 500 employees) to provide up to 80 hours of paid sick leave. There’s also mandatory paid family leave. (Employers with fewer than 50 employees can claim exemption from having to pay this sick and family leave.) Employers that pay such leave are reimbursed for this benefit from federal employment tax offsets. The law also specifies that part-timers are entitled to an equivalent amount. For this purpose, a full-time employee is someone normally scheduled to work a 40-hour work week. According to the DOL (question 49), the number of hours worked affects the amount of benefits the employee is eligible to receive.
Until now, employers with qualified retirement plans were only required to allow full-time employees to participate in the plans. The Further Consolidated Appropriations Act 2020 (which includes the SECURE Act) makes part-timers eligible to participate. This means that 401(k) plans must allow long-term part-timers this option. This includes any employee who is at least age 21 and who works at least 500 hours in 3 consecutive years. However, employer matching of contributions by part-timers is not mandatory. If an employer chooses to do so, then vesting is based on a year of service, defined for this purpose, as working at least 500 hours during a 12-month period.
This new rule for part-timers generally takes effect for plan years beginning after December 31, 2020, so small businesses should include this in budgeting and other planning for next year. And calendar year retirement plans must be amended to reflect the new rule by December 31, 2022.
Small businesses may wish to extend certain employee fringe benefits to part-timers. For example, they can allow these workers to accrue paid time off (vacation, sick, and personal days) based on the hours worked. They can allow part-timers to telecommute on the same terms offered to full-time employees if this arrangement works for the company. The decision for offering benefits depends, of course, on cost, company culture, and other factors.
In a post-pandemic world, you’ll want to review your staffing needs and part-timers may have an important role to play in your business. Be sure to consider the benefits offered to them and review your budget with your CPA. If you’re unsure of your obligations, check with an employment law attorney.