When new hires are added to your system, they start with a standard measurement period. After the standard measurement period ends, they enter an administrative period where you review their hours and offer them insurance if applicable.
Using look-back measurement periods gives you the advanced warning you need to offer coverage to part-time employees and avoid IRS ACA penalties. But how do you calculate these periods correctly?
Calculate the Stability Period
The ACA rules around employee time tracking get complicated if you have employees who regularly work a different number of hours each week and month. This is especially true if you have variable-hour employees like seasonal, fleet, or remote workers. This is why the ACA allows large employers to use either a look-back measurement method or monthly ACA measurement periods for their ACA reporting and compliance.
Both methods allow for the ups and downs in your employee’s hours to be statistically averaged. Ultimately, they determine whether an employee, on average, works 30 or more hours per week or 130 hours or more per month and therefore is a full-time employee. This is important because, under the ACA, you must offer health coverage to all full-time employees to avoid a penalty.
Once employees are full-time (and thus eligible for coverage) after the initial or standard measurement period, they are locked in as full-time workers for their entire stability period. This stability period must be at least 12 months, and at most, the measurement period or an administrative period can be up to six months.
So it’s important to be aware of the length of these periods when designing your ACA measurement and stability period approach, especially for new hires who will have to go through an initial measurement and administration period followed by their first stability period.
Calculate the Administrative Period
For ACA reporting purposes, you must identify the administrative period for each employee. For a regular, ongoing employee, this is generally the same as the measurement period that you use to determine if they are eligible for coverage.
For new hires, it is the first measurement period that you use to establish whether they will qualify for benefits.
The administrative period must be at least two months long. It must also follow the standard measurement period’s end and before the stability period’s start. In addition, it must exclude any periods of special unpaid leave, such as FMLA, USERRA, or jury duty, that you have designated as “protected” leaves and require you to “protect” the corresponding hours from being included in your look back measurement.
For seasonal and variable-hour employees, it is most efficient to use a short cycle look-back measurement period that starts in the same part of the year every year. This will allow you to track the hours worked more easily and ensure they meet the minimum 30-hour weekly standard.
Calculate the Stability Period Length
If your company has traditional full-time employees who work predictable hours every week and month, tracking hours for ACA compliance may not seem complicated.
But, things get more complex if your company has variable-hour workers like seasonal or fleet employees or new hires whose predicted hours are unknown. You might have to use a look-back measurement method when this is the case.
The look-back method measures and averages an employee’s hours of service over a period (referred to as a measurement period) to determine eligibility for the company’s health insurance plan.
This is the best method for minimizing ACA penalty risk for companies with a workforce with varying schedules or fluctuating service hours.
Regardless of whether you use the initial or standard measurement period, all new and tenured employees must be offered coverage for the stability period following the end of the measurement period (and a buffer known as an administrative period if your company chooses to have one).
The stability period can be at least six months, typically coinciding with your insurance plan year.
To avoid ACA penalties, you must offer your eligible full-time workers health insurance for the entire stability period.
If you drop an employee during their stability period and they then apply for or receive subsidized coverage on the marketplace/exchange, your company could be subject to a large fine.
Calculate the Final Stability Period Length
The ACA requires large employers to offer health insurance coverage to full-time employees or face IRS penalties. However, for hourly workers with fluctuating work hours, it can be challenging to determine which employees qualify as full-time or part-time.
To help minimize this complexity, the ACA allows employers to use a system of measurement and stability periods.
This process determines which employees qualify as full-time or part-time by analyzing an employee’s total number of paid hours for a specified period, known as the standard measurement period.
If the average number of hours worked for the measurement period meets or exceeds 130 hours per week, the employee qualifies as a full-time worker. The employer must then offer the employee health insurance coverage for a defined stability period.
The stability period is the period that follows the standard measurement period and must be at least six months and not longer than 12 months.
It must also align with the employer’s benefit plan year. For example, it must begin on the first day of the month, begin with the measurement period end date, and end on the last day of the month, ending with the stability period start date.
While the look-back measurement method is complex and time-consuming, minimizing ACA penalty risk starts with the right partner who provides software, services, and monthly reporting and reviews.
The experts at Tango Health can assist with calculating the correct look-back measurement, administrative, and stability periods for your specific company needs.
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