How to Use the Look-Back Measurement Method to Determine Full-Time Status Under the Affordable Care Act

Under the shared responsibility provisions of the Patient Protection and Affordable Care Act (PPACA), applicable large employers must offer affordable health care coverage with minimum value to employees who have an average of 30 or more hours of service per week or 130 hours of service per month; alternatively, employers may choose to pay a penalty. Under the Act, an applicable large employer (ALE) is defined as an employer with an average of at least 50 full-time employees (including full-time equivalent employees). Small employers with fewer than 50 employees are not subject to these penalties and have no obligation to offer coverage to employees or define eligibility at 30 or more hours of service per week.

The final regulations under the employer shared responsibility provisions provide employers with two options for identifying a full-time employee when an employee's hours vary or when it cannot be reasonably determined if an employee will average full-time hours (30 hours per week):

• Monthly measurement method. The employer determines each employee's status as a full-time employee by counting the employee's hours of service at the end of each calendar month. Under this method, any employee with at least 130 hours of service during the calendar month will be considered a full-time employee for that month.

• Look-back measurement method. This method is an optional alternative approach in which an employer may determine the full-time status of an employee during a future period (referred to as the stability period), based on the employee's hours of service in a prior period (referred to as the measurement period). Under this method, an employer looks back over a defined period of time (measurement period) to determine if the employee averaged at least 30 hours per week. This option is available only when it cannot be determined that the employee will be employed on average at least 30 hours per week; an employer may not use the look-back method for employees who are hired to work full time and who are reasonably expected to work full time (30 or more hours per week).
  

This how-to guide focuses on the look-back measurement method only.

Step 1: Define the Measurement Period, Administrative Period and Stability Period

When using the look-back method, the employer needs to define the following periods:

• A measurement period to look back at hours worked over the course of at least three months but no longer than 12 months to determine if an employee averaged at least 30 hours per week. Considerations include the following:
• • The employer will need to define an initial measurement period for newly hired employees as well as a standard measurement period for all other employees.
  • The initial measurement period can begin on any date between the employee's start date and the first day of the calendar month following the start date.
  • After a new variable-hour or seasonal employee has been employed by an employer for a standard measurement period, the employee is considered to be an ongoing employee and must have his or her hours measured on the same basis as other ongoing employees. For administrative ease, many employers coordinate the standard measurement period with their open enrollment and plan year.
    
    
• An administrative period of up to 90 days in addition to the initial measurement period and standard measurement period. This administrative period gives the employer time to determine which of its employees have satisfied the requirement of an average of 30 hours per week to be eligible for coverage. The administrative period also allows an employer sufficient time to provide information about medical plan coverage options and enrollment materials to employees who have met the requirement. A new hire's initial measurement period and the administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee's start date.
  
  
• A stability period, which is a designated period of not less than six months (and not less than the corresponding measurement period) during which the employer must offer coverage to all individuals identified as full-time employees during the measurement period, regardless of hours worked during the stability period. For example, if an employer has a three-month initial measurement period, the stability period must be at least six months. If an employer has a 12-month initial measurement period, the stability period must be at least 12 months. During the stability period, employees are locked into full- or part-time status based on the hours of service determined during the initial or standard measurement period, regardless of how many hours the individuals work during the stability period. Once it has been determined that these employees are full-time employees, they must remain eligible for coverage for the entire stability period.

Step 2: Determine Full-Time Status Based on Hours of Service

Once the initial and standard measurement, administrative and stability periods are established, an employer can begin to assess full-time status of new variable-hour employees.

A full-time employee for any calendar month is an employee who has, on average, at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month. Hours of service include actual hours of work as well as paid time off, such as vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

For an employee paid on an hourly basis, an employer should examine the employee's pay records and include any actual hours worked, in addition to any hours for which the employee used paid leave, to determine what hours to include in the hours of service calculation.

For employees not paid on an hourly basis, an employer has three options for calculating the hours of service:

Option 1: An employer may use the same method it uses for employees paid on an hourly basis.

Option 2: An employer may use a days-worked equivalency method. Using this method, the employer credits the employee with eight hours of service for each day during which the employee had at least one hour of service. For example, Joe, who is paid on a salary basis and normally works 9 a.m. to 5 p.m., comes in Monday morning as scheduled but needs to leave at 12 p.m. to go to a doctor's appointment and does not return that day. Even though Joe worked less than a full day, for the purpose of this calculation, he would be credited with an eight-hour day.

Option 3: The third method uses a weeks-worked equivalency of 40 hours of service per week for each week during which the employee would be required to be credited with at least one hour of service. For example, Joe works Monday 9 a.m. to 5 p.m. and then has a family emergency and needs to be out the rest of the week. Using this method, because Joe worked at least one hour that week, the employer could use 40 hours of service for the week as the basis of the calculation.

Employers may use different methods for different classifications of nonhourly employees if the classifications are reasonable and consistently applied.

Step 3: Offer Health Insurance to Full-Time Employees

Once an employer has determined which employees are considered full-time, the employer must offer health insurance coverage to these employees in accordance with the benefits plan document. Employers should document the offer of health insurance as well as an employee's enrollment or waiver of coverage as evidence of compliance with the law.