Applicable Large Employers must track non Full-Time employees to determine if they have met the ACA Regulation Standards of ACA Full-Time.
Look Back Method (Recommended)
The Look Back Methodology is one option to achieve this goal. The method uses a tracked employee’s average hours of service per week during a Measurement Period to determine if an employee is a Full-Time (ACA) employee during a subsequent period called a Stability period. Employees tracked during a Measurement Period are determined to have met the ACA Standard of full-time if they have averaged 30 or more hours of service per week during the Measurement Period. Tracked Employees that average 30 or more hours of service per week during the Measurement Period would then be treated as an ACA Full-Time employee during a subsequent Stability period regardless of the employee’s number of hours of service during the Stability period, so long as he or she remains an employee.
Common terminology used with the Affordable Care Act and Tracking:
- ACA Term: Stability Period better known as Plan Year
- ACA Term: Admin Period better known as Open Enrollment Period
- ACA Term: Measurement Period better known as Lookback Period
Each time a Measurement Period ends the next one begins. Looking at the diagram above you can see that the Measurement Period comes first and is immediately followed by the Admin Period which is immediately followed by the Stability Period.
We find it easiest to work backwards to figure out your Measurement Period since the Plan Year (Stability Period) and Admin Period (Open Enrollment) are dates already known by your company. It is always the Measurement Period part of the equation that must be determined.
Determine when the Plan Year begins and Ends.
The length of the Stability Period/Plan Year always matches the length of the Measurement Period/Lookback Period. Since most plans are 12 months – most measurement periods will also be 12 months.
Determine how long the company takes to present the new plans being offered to the employees for the upcoming plan year, make the offers to the eligible employees, receive the outcomes of the offers back from the eligible employees and then fill out and provide the paperwork to the insurance carrier in enough time so they can setup the employees who elected coverage before the coverage begins. This will be the Admin Period (Open Enrollment). Most companies allow 1,2 or 3 months (0 – 90 days) for this process.
Example #1: Plan Year begins 1/1/2018 and ends 12/31/2018 & Admin Period is 90 days (3 months)
- Stability Period 1/1/2018 thru 12/31/2018
- Admin Period 10/1/2017 thru 12/31/2017
- Measurement Period 10/1/2016 thru 9/30/2017
Example #2: Plan Year begins 5/1/2017 and ends 4/30/2018 & Admin Period is 30 days (1 month: since the month before May has 30 days, there are 30 days in the Admin Period. If the Admin Period month were March, it would be a 31-day period)
- Stability Period 5/1/2017 thru 4/30/2018
- Admin Period 4/1/2017 thru 4/30/2017
- Measurement Period 4/1/2016 thru 3/31/2017
- Ongoing Employees = non full-time employees that have been employed with the organization for at least one full Measurement Period. The Standard Measurement Period is used to track these employees.
- New Variable Hour Employees = non full-time employees that have not been employed with the organization for at least one full Measurement Period. The Initial Measurement Period is used to track these employees. After the initial Measurement Period these employees merge in with the Ongoing Employees for tracking.
Monthly Measurement Method
The Monthly Measurement Method is second of the two approved methods to track employees for ACA compliance. Under this method, the employer simply tracks an employee’s hours each month (rather than through a Measurement Period). At the end of each calendar month, the employer determines if the employee was full-time or not for the calendar month. Full-time in this case means that the employee worked 130 or more hours in the month.
The main disadvantage to using the Monthly Measurement Method is that an employer is almost guessing at whether an employee is full-time and whether or not they should offer an employee coverage. If the employer guesses wrong at the beginning of a calendar month, they may be penalized for not offering coverage.
Example: Arthur works at ABC Inc. ABC Inc. does not believe that Arthur is really working full-time hours at the beginning of January 1, 2016, so they choose not to offer him coverage. On January 31st, it turns out that Arthur worked 140 hours for the calendar month and according to the Affordable Care Act, Arthur was full-time for January, and now must be reported on to the IRS, and could trigger a penalty for the employer. This inconsistent guess can cause serious problems for an employer, which is why most employers choose to use the Look-Back Method.
When is the Monthly Measurement Method appropriate? There are really two practical scenarios when this tracking method may be appropriate for an employer to use:
- If they truly know that they have all full-time and part-time people and hours do not fluctuate.
- When an employer cannot access or get the amount of historical data that we require for the Look-Back Method. In this case it still may not be the best idea to track this way, however it at least allows the customer to use our system as an auditable source of data if the IRS audit them.