In previous posts on employment status under the ACA, we have focused on full-time equivalency (FTE) and how it’s determined for applicable large employers (ALES), and the various types of employment and how they accrue up to FTE. Today’s post centers on the ever-important measurement periods, set amounts of time that employers use to establish full-time (FT) or part-time (PT) employment status.
It is worth nothing that measurement periods must be consistent for all employees in the same category within an organization; employers cannot pick-and-choose the type of measurement period based on each individual employee’s employment situation. In addition, measurement periods and administrative periods must be completed before the starts of the new plan or calendar year.
Types of measurement periods:
- Month-to-month: For employees with a stable FT and/or PT workforce where in hours remain consistent from month-to-month, employers can measure FT and PT status on a monthly basis. For new employees who are considered FT, it is reasonably expected that healthcare coverage will be offered within the first three months of the employee’s start date.
- Standard measurement period: A “look back” period of at least three months and up to 12 months, wherein an employer averages the number of hours an employee works per week or month to determine FT or PT employment status. For employers that primarily have stable hours for FT and PT employees, determining average hours worked using a standard measurement period will likely be a simple task. The difficulty lies with employers who use variable-hour and seasonal employees (see example below).
- Initial measurement period*: For new FT or FTE employees, an initial measurement period of 3-12 calendar months is allowed before employees must be enrolled in group health coverage. The initial measurement period must begin on the 1st of the month following the employee’s start date and/or on the first day of payroll. Please note that this is different from the 90-day waiting period limits for new employees, which is the threshold for calendar days between when an employee is deemed eligible for group health coverage and when coverage is available.
- Stability period: The time after a measurement period when an employee who has met requirements for FT employment can continue to maintain FT status (and therefore health coverage) regardless of hours worked. The stability period must be at least six months; if the standard measurement period was longer than six months, the stability period must be the same duration. At the end of the stability period, a new measurement period must begin to determine FT or PT status. For new employees who have completed the initial measurement period, their stability period will be the same as for ongoing employees.
- Administrative period: The time between determining an employee’s FT or PT status using an initial or standard measurement period, and when new health coverage is offered. Administrative periods are up to 90 days. For ongoing employees (whose employment status has been determined with the standard measurement periods) the administrative period must overlap with the previous stability period to ensure no gaps or loss of coverage for the employee. For new employees*, the administrative period begins on the employee’s start date.
Using Look Back Periods for Seasonal and Variable Hour Employees
The biggest challenge in determining FTE will likely apply to organizations with variable hour and seasonal employees.
For example, imagine that company ABC has 40 PT employees – 20 seasonal workers who work 160 hours/month from May-September and 20 variable hour workers who fluctuate between 80-150 hours per month. Company ABC decides to employ a 12-month standard measurement period from October 1, 2015 to September 30, 2016.
- For each seasonal worker, company ABC will multiple 160 (number of monthly hours worked) times 6 (number of months worked), and then divide by 12 (number of months in the look back period). This averages to 80 hours per month per employee, meaning that each seasonal employee does not qualify for FT status and therefore does not qualify for group health coverage.
- For variable hour employees, company ABC will total up the number of hours each employee worked for each month during the 12-month look back period, and then divide by 12. For an employee who worked 4 months at 80 hours/month, three months at 100 hours/month, and five months at 150 hours/month, company ABC will add 320+300+750, which equals 1370. The total hours worked (1370) is then divided by 12 for an average of 114 hours worked per month, meaning that this particular employee does not qualify for FT status and therefore does not qualify for group health coverage.
Would you like to learn more about ACA employer mandates?
* The initial measurement period and subsequent administrative period cannot last longer than the last day of the first month after an employee’s first anniversary with the organization.
