We have been warning that employers will need months of advance planning and an automated process to use the ACA’s “look-back measurement method” to identify the full-time employees who will be entitled to an offer of coverage. In a future article, we’ll report our impressions of several software options. Here, we’ll make it as simple as we can and yet you’ll be dizzy before we’re done. All references are to the IRS Employer Shared Responsibility Cost Final Rules, 26 CFR 54.4980H-3(d) (79 Federal Register pp. 8586 – 8594, Feb. 12, 2014). Among other short-cuts, we’ll ignore special rules that apply only to school employees; we’ll ignore the option to insert an “administrative period” between a measurement period and its associated stability period; and, we’ll discuss another day how to determine whether a returning employee is a “new hire,” and how to count hours of “special unpaid leave” if she is not.

There is nothing like this in the ACA. The statute says almost nothing about how to count “hours of service” to determine full-time status. But unless employers cut part-time hours way back, month-by-month eligibility determinations could be nearly impossible to administer. Fear that employers would do just that might explain why the IRS created this option. First, four important ground rules:

  • Do not use this to count your “full-time employees” to determine your status as an “Applicable Large Employer.” Though some of the same terms are used, they mean different things in the different contexts.
  • Don’t use this for new hires you expect to work full-time. If you use it to delay their coverage offers, you may incur both fines and taxes.
  • Eligibility of full-time employees and their dependents is an ACA mandate; excluding others is not. Given the administrative burden of full-time tracking, open eligibility might make sense for many employers.

You may have different measurement and stability periods for these different employee groups: union-represented and non-union; different unions; salaried and hourly employees; employees whose primary workplaces are in different states. There are different measurement and stability rules for “ongoing” and newly-hired employees. We’ll ease into this by starting with “ongoing” employees – i.e., those who have worked at least one entire “standard measurement period.” Again, keep in mind that our summaries and examples are simplified for this blog format.

Calculate each employee’s average weekly “hours of service” during a pre-designated “standard measurement period,” then treat that employee as full-time during the entire, associated, “stability” period if the average was 30 or more; otherwise, not.

The “standard measurement period” must be between 3 and 12 months. Its associated “stability period” must be the longer of six months or the length of the “standard measurement period.”

Example: ABC Corp. has a 12-month standard measurement period beginning October 15, 2014 and a calendar year stability period. Jethro began working for ABC September 1, 2013. His weekly average hours of service for the measurement period ending October 14, 2015 are 31.3. He is full-time eligible for the entire 2016 stability period, even if his 2016 hours fall below 30 per week.

The rules for new hires are more complex. Each employee who has not worked at least one entire “standard measurement period” must be assigned his or her own “individual measurement period” and an associated “stability period.” The length of each must be the same for all employees within the same group (as with the standard periods). The measurement period must be between 3 and 12 months; the stability period must be the longer of six months or the length of the measurement period and must be the same length as the stability period for ongoing employees. For those measured as full-time, if the longest periods are selected, coverage cannot be delayed beyond the last day of the first calendar month beginning on or after the first anniversary of the employee’s start date. Such employees must be treated as eligible for the entire, associated stability period.

For new hires measured under 30 weekly “hours of service” during the initial measurement period, ineligibility for the entire associated stability period is lawful, except that their stability period cannot last more than one month longer than the initial measurement period and must not exceed the remainder of the overlapping standard measurement period.

If the new hire is promoted to a full-time job during the initial measurement period, then coverage may not be delayed past the earlier of the first day of the fourth full calendar month following that promotion or the start of the associated stability period, if the employee was measured full-time during the initial measurement period.

If the stability period associated with the initial measurement period ends before the start of the stability period associated with the overlapping standard measurement period, then the employee’s status during the former stability period continues until the latter stability period starts.

Example: DEF Corp., which uses a 12-month initial measurement period, hires Butch part-time on May 10, 2015, but then promotes him to a full-time job on September 15, 2015. Butch is entitled to a coverage offer that can be effective not later than January 1, 2016.

Another example: GHI Corp. uses a 12-month initial measurement period (running from the hire date) and a 12-month standard measurement period starting each October 15, associated with a calendar year stability period. Callie is hired April 1, 2015 and measured to be full-time during her 12-month initial measurement period, so that she is deemed full-time for the stability period April 1, 2016 through March 30, 2017. But, during the standard measurement period October 15, 2015 through October 14, 2016, she is measured less than full-time. So, from April 1, 2017 through December 31, 2017, GHI Corp. is permitted not to offer her coverage.

Have you had enough, or are you thirsty for more? We ask because there really is so very much more. Employer mandate enforcement for most large employers starts in about 21 weeks. By now, you should know whether and by what method you will track hours of service for purposes of 2015 and 2016 eligibility. Unless a third party benefit administrator or payroll processor will handle this reliably, you also should be shopping for software.