4 Considerations to Keep in Mind When Hiring Seasonal Employees

seasonal employees aca

Using seasonal candidates to boost your workforce can present several unique issues—especially for those who are dipping their toes into the seasonal hiring pool for the first time. Here are some issues retailers should work through as they strategize how to scale up their workforce for the busy periods.

According to the Internal Revenue Service, “seasonal employees” generally work for periods of no longer than six months, and start their employment period around the same time each year. The U.S. Bureau of Labor Statistics data indicates that retailers might have hired as many as 650,000 seasonal employees in 2018—up from 582,500 the year before.[1]  

How Are You Integrating Seasonal Employees Into Your Team?

Although seasonal employees work for fewer months annually than their full-time peers, they are treated the same for taxation and legal purposes. You’ll still need to withhold FUTA, Medicare, social security, and federal income taxes from your seasonal employee paychecks just as you would with your other employees. Even more critically, seasonal workers can also leverage the same workplace safety, workers’ compensation, discrimination, overtime, holiday and sick pay, and other federal Fair Labor Standards Act (FLSA) and state law labor protections that full-time employees rely on.  

Often, employers rush seasonal hires through orientation and training, which can raise the risk of on-site injuries or other workplace problems. Getting store and department managers involved early on to provide adequate workplace safety, training, and task-related feedback can help mitigate these risks. You’ll also need to ensure your seasonal candidates fill out IRS Form W-4 and Form I-9, and receive necessary disclosures relating to available healthcare coverage options under the Affordable Care Act (ACA) and relevant state-specific information.  

Be sure to consult with an experienced attorney with any specific questions regarding how your business should onboard and train candidates in accordance with the FLSA, IRS policies, and state law.

seasonal employees aca

Do Employers Have to Offer Health Insurance to Seasonal Employees Under the ACA?   

One major issue that employers face is whether the number of seasonal workers they hire will force their businesses to face rules applicable to large employers (ALEs) under the affordable care act (ACA).

ALEs must offer minimum essential healthcare coverage to their workers and undergo additional reporting requirements.[2] Non-compliant ALEs might be required to pay a tax penalty in the form of a shared responsibility payment, the size of which will be dictated by the size of their business, and the number of full-time employees they have on staff. ALE businesses could also lose out on valuable tax credits such as the small business healthcare tax credit.

The general rule here is that a business will qualify as an ALE if it employs more than 50 full-time employees or full-time equivalent employees (FTE). Under the law, a full-time employee is one who works 30 hours of work per week. And a full-time-equivalent employee is two or more employees who together work the equivalent of 30 hours per work—those workers combined would be considered as one FTE employee

The ACA, however, gives leeway to companies that hire seasonal employees so long as certain conditions met. Under the ACA, businesses might have more than 50 employees for no longer than 120 days within a calendar year period, so long as all of the additional employees worked during that 120-day period qualify as seasonal workers.[3] If you retain seasonal workers for longer than 120 days, however, your seasonal employees could be considered “full-time-equivalent employees” for ALE qualification purposes.

Although you’re not obligated to offer seasonal employees health insurance solely because you’ve employed them, you will need to keep close track of all of your seasonal employees’ hours to see if the amount of hours they’ve worked could trigger ALE compliance requirements for your business.

seasonal employees aca

How Will Onboarding Seasonal Employees Affect My Company’s Retirement Program?

Just because you’re considering hiring some employees on a seasonal basis does not mean those employees are exempt from participating in your business’s retirement and benefits plans. The IRS expressly prohibits business owners from excluding a seasonal or temporary employee from their plans if those employees are at least 21 years old and have performed services for your organization in at least three of the five immediately preceding years.[4]  

If you or your business partners own multiple other ventures, the IRS states that you’re required to include any eligible seasonal employees from those businesses into your retirement plan, as well.[5]

The only situations where the IRS will allow business owners the option of not offering SEP plan options to seasonal workers are if the employees were covered under a union agreement that included negotiated retirement plan terms, earned less than $600 in 2015-2019 or less than $500 in 2009-2014, or were nonresident alien employees who didn’t receive any U.S. source income from your organization.[4]  

Businesses that fail to properly account for this will be required to open new SEP-IRA accounts—if necessary—for their excluded employees, and deposit corrective contributions directly into their accounts on their behalf.

They may also be required to enroll in the IRS’s voluntary correction program or negotiate a fair resolution with the IRS through the agency’s Audit Closing Agreement Program.

Although you are permitted to exclude seasonal workers from your retirement program, you’re not allowed to exclude seasonal workers who end up meeting your plan’s minimum age and service hour requirements. You also cannot incorporate language in your plan’s onboarding requirements that would by implication require your seasonal employees to work additional hours beyond the minimum requirements your plan communicates. If you allow seasonal employees to join your plan but use more restrictive standards to determine their eligibility, your plan language would need to pass one of the IRS’s three coverage tests, which you can learn more about here.

To determine whether your retirement plans are properly set up with regards to seasonal employees, you’ll need to consult with your IRA provider and experienced employment attorneys to determine if your eligibility requirements properly accommodate qualified seasonal employees.   

Are You Screening Your Seasonal Employee Candidates?

Even though you’ll only be working with seasonal employees for a short time period, it’s critical that you screen your seasonal candidates before incorporating them to your team. Failing to do so can create major internal problems for your business, especially in retail.

According to a recent National Retail Foundation study, employee theft currently accounts for roughly one-third of retail inventory shrinkage this year.[6] You could also be liable under the legal theory of negligent hiring if a plaintiff can show you knew or should have known that your seasonal hire had dangerous or untrustworthy traits—and those traits came out in an unflattering light over the course of the seasonal hire’s work.  

This is important for businesses that hire seasonal employees in roles involving unsupervised or routine interactions with clients. This underscores why businesses shouldn’t jump the gun when hiring new seasonal hires. Analyzing seasonal candidates using the same background testing, drug testing, and reference checking procedures they use with other prospects can help.

Disclaimer: This article has been prepared for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.

Article Sources:

  1. NRF.com. “NRF Forecasts Holiday Sales Will Increase Between 4.3 and 4.8 Percent
  2. IRS.com. “Employer Shared Responsibility Provisions
  3. IRS.com. “ACA and Employers: How Seasonal Workers Affect Your ALE Status
  4. IRS.com. “SEP Plan Fix-It Guide – Eligible Employees Were Excluded From Participating
  5. IRS.com. “SEP Plan Fix-It Guide -Employees From Related Businesses Were Excluded From Participating
  6. NRF.com. “Industry Research – Inventory Shrinkage

Eric Pesale

Eric Pesale is an attorney and entrepreneur who writes about business and legal issues for law firms, publications, and companies as the founder and chief legal contributor of Write For Law℠. He is a graduate of New York Law School and the University of North Carolina at Chapel Hill, and has been published in CSO, the New York Law Journal, and Above the Law. He is actively engaged with startup business issues.

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