What Is a Break In Service?
A break in service is the loss of benefits when an employee returns to a company more than 13 weeks after they left and must wait to become eligible again. It’s not unusual for an employee to either voluntarily or involuntarily leave a job then get rehired in the future by the same company. However, how the employee's benefits are handled upon returning depends on whether they’re considered a new hire or a rehire.
- A break in service happens when an employee leaves a company for at least 13 weeks but is rehired.
- Employees that return to their previous company within 13 weeks are considered a rehire and will get benefits reinstated immediately.
- A returning employee deemed a new hire must work for a determined period before being eligible for benefits, hence, the break in service.
- The “rule of parity” says a rehired employee can be treated as a new hire if the break in service is longer than the period worked prior to leaving.
- A break in service for pension credit relates to failing to work enough hours in a given year to keep previously vested pension credits.
How a Break In Service Works
The Patient Protection and Affordable Care Act (ACA) defines returning workers as rehires if a break in service (the time between the day they left and the day they came back) is less than 13 weeks. On the other hand, employers can designate someone rehired beyond the 13-week period as a new hire.
It’s a huge distinction for both employers and employees. Full-time rehires must be provided healthcare coverage immediately because they’ve already qualified to receive certain benefits during their prior employment. New hires must start from scratch and work a designated period before benefits kick in.
The way an employer defines a full-time employee is key for applying the rehire rule. The IRS says that a person must work at least 130 hours per month, or 30 hours per week to be considered as such. If the employer decides based on the Monthly Measurement Method that a past employee worked full-time and satisfied a past waiting period, benefits must be reinstated from day one.
A returning employee deemed a new hire, however, can be treated like any other one and must work for a determined period before being eligible for benefits.
The adage “there are exceptions to every rule,” applies to the break-in service as well. The ACA allows an employer to apply a “rule of parity,” which means they can treat a rehired employee as a new hire if the break in service is longer than the period worked prior to leaving. In other words, an employee who worked previously for five weeks, one shy of eligibility, can be treated a new hire and must wait to receive benefits.
Types of Break In Service
Beyond a break in service for benefits, a break in service can also apply to those with pensions. A break in service for a pension happens if there’s a one-year break in service before working for five years. If this happens, previously vested years toward a pension may be canceled.
Temporary breaks in service related to such reasons as childbirth, pregnancy, child adoption, or any reason under the Family Medical Leave Act of 1993, do not count. A one-year break in service happens if during any calendar year the employee fails to complete at least 436 hours of employment. A break in service can be temporary and repaired with a sufficient amount of subsequent work.