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It is prime time of the year for hiring “interns.” They usually are high school, college or even graduate students looking for work experience. Certain interns may be unpaid (the analysis of whether interns must be paid is an important issue but beyond the scope of this blog post). However, many companies provide paid internships. If the interns are paid employees, you may have to cover them under your employee benefit plans. At a minimum, you can’t just think “oh, those are interns, not real employees; I don’t need to worry about them.” Think again.
401(k) Plan. In recent years, many 401(k) plans have shortened their waiting periods for coverage under the plan. Sometimes coverage is immediate; often the coverage date is the first day of the month after date of hire. Often, the 401(k) plan does not exclude any groups of employees except for the typical “check the box” exclusions for union employees and maybe non-resident alien employees.
With that plan design, how do we analyze the situation of interns under the 401(k) plan? First, is the intern an employee? Yes. Is the intern in an excluded group of employees, per the terms of the plan? No. The result is that the intern is an employee eligible for the 401(k) plan. Starting when? Starting under the usual plan rules – beginning of the next month, next quarter, etc. If the intern terminates employment before the start date for plan coverage, then you don’t have to worry about enrolling him or her. Be on the lookout if the intern is rehired during the school year; application of the re-hire rules can be tricky. But, if the intern is working for you on the coverage start date, he or she has to be enrolled for plan coverage, even if employment is expected to end just a few weeks later. “Enrollment” includes automatic enrollment, if your plan has that feature, or inviting the employee to take affirmative steps to contribute to the plan. You treat the intern like any other employee.
How can you avoid the administrative effort and compliance burden of enrolling the intern when he/she will be employed for a short period and doesn’t really want his/her paycheck reduced by an automatic contribution? You make sure the 401(k) Plan has an exclusion from eligibility for this type of employee. This may be by specific category – “interns” – or perhaps under a category of “temporary” or “seasonal” employee. The latter two categories can have their own complications, but generally speaking, they can be applied to exclude the summer intern from the plan. If you need to amend the plan specifically to exclude interns, it is better to use the specific category of “intern.”
Group Health/Other Insurance Plan. The analysis under the group insurance plan is similar, but with a potential twist under the Affordable Care Act. The typical group insurance plan covers “employees regularly scheduled to work 30 or more hours each week.” OK – that’s the general category for coverage under the plan and interns often meet this definition. If the intern works fewer than 30 hours each week, you can stop there – he or she won’t be eligible for the group insurance plan.
If the intern is working a full-time schedule (30+ hours) you have to consider the next step of when group insurance coverage would be effective. As with 401(k) plans, many insurance plans have shortened the waiting period for coverage, which then is effective at the beginning of the next month or perhaps the second month. The intern has to be offered the chance to enroll in the group insurance plan just like other full-time employees, if he or she still is employed at the coverage effective date. Many interns already have coverage under another plan, e.g., a parent’s plan, and will decline coverage. Don’t forget about insurance benefits that are “automatic,” such as life and disability coverage. The intern will be eligible for that coverage, just like other full-time employees.
As with the 401(k) plan, a group insurance plan may exclude interns. Exclusions under group insurance plans tend to be fewer because the group insurance “plan document” typically is not a “check the box” format where common exclusions are listed. With a group insurance plan, the employer often has to consciously consider and write down the exclusion. This may come in the simplest form of a few more lines on the group insurance application, e.g., “all employees regularly scheduled to work 30 or more hours each week, except interns, seasonal employees and temporary employees, as shown on the employer’s human resources or payroll records” or something similar. If the group insurance plan has this exclusion, then you do not need to offer coverage to the intern.
If the group insurance plan has this exclusion, it is possible that an intern may be characterized as a “seasonal” or “variable hour” employee under the Affordable Care Act’s (ACA) shared responsibility rules under which an employer may have to pay a penalty if it doesn’t offer coverage to enough of its “full-time employees.” Seasonal and variable hour employees generally have to be evaluated for full-time status under the ACA only after a year (assuming the employer uses a 12-month measurement period under the ACA). If the intern no longer is employed at that time, there will be no concern with having excluded the intern from the group health insurance plan. Even if the intern is employed after a year and is considered a full-time employee who was excluded from coverage, if your company has only a few interns who are not offered coverage under the group insurance plan that generally covers all other full-time employees, it’s likely you will not suffer any ACA penalties. The ACA has a 5% “buffer,” in that an employer is required to offer coverage to only 95% of its full-time employees.
A detailed discussion of the ACA’s shared responsibility rules is beyond the scope of this post. The main takeaway here is to not assume that you don’t have to offer employee benefit plan coverage to your interns. Take a few minutes to review your plans’ eligibility rules to understand how they treat interns.