From the health care reform experts at Accelerated Benefits
The Affordable Care Act (ACA) imposes a
penalty on applicable large employers (ALEs) that do not offer health
insurance coverage to substantially all full-time employees and
dependents. Penalties also may be imposed if coverage is offered but is
unaffordable or does not provide minimum value. The ACA’s employer
penalty rules are often referred to as “employer shared responsibility”
or “pay or play” rules.
On February 12, 2014, the IRS published final regulations on the
employer shared responsibility rules. These regulations finalize
provisions in proposed regulations released January 2, 2013. The final
* ALEs that have fewer than 100 full-time employees (including
full-time equivalents, or FTEs) generally will have an additional year,
until 2016, to comply with the pay or play rules.
* ALEs with 100 or more full-time employees (including FTEs) must
comply with the pay or play rules starting in 2015.
The pay or play rules will take effect for most ALEs beginning January
1, 2015. To prepare for compliance, employers that intend to use the
look-back measurement method for determining full-time status for 2015
will need to begin tracking their employees’ hours of service in 2014
to have corresponding stability periods for 2015.
Identifying full-time employees
A full-time employee is an employee who was employed on average at
least 30 hours of service per week. The final rules treat 130 hours of
service in a calendar month as the monthly equivalent of 30 hours of
service per week.
The final regulations provide two methods for determining full-time
employee status—the monthly measurement method and the look-back
measurement method. These methods provide minimum standards for
identifying employees as full-time. Employers may decide to treat
additional employees as eligible for coverage, or otherwise offer
coverage more expansively than would be required to avoid a pay or play
Monthly measurement method
The monthly measurement method involves a month-to-month analysis in
which full-time employees are identified based on their hours of service
for each calendar month. This method is not based on averaging hours of
service over a prior measurement period. This month-to-month measuring
may cause practical difficulties for employers, particularly if there
are employees with varying hours or employment schedules, and could
result in employees moving in and out of employer coverage on a monthly
Look-back measurement method
The look-back measurement method is an optional safe harbor method for
determining full-time status that is intended to give employers
flexible and workable options and greater predictability for determining
full-time employee status. The look-back measurement method
* A measurement period for counting hours of service
* A stability period when coverage may need to be provided,
depending on an employee’s average hours of service during the
* An administrative period that allows time for enrollment and
Employers that intend to use the look-back measurement method for
determining full-time status for 2015 will need to begin their
measurement periods in 2014 to have corresponding stability periods for
2015. However, employers intending to adopt a 12-month measurement
period (and, in turn, a 12-month stability period) will face time
constraints in doing so.
Consequently, as transition relief, the final regulations allow
employers to use shorter measurement periods for stability periods
starting in 2015 under the look-back measurement method. For 2015,
employers can determine full-time status by reference to a transition
measurement period in 2014 that meets the following requirements:
* Is shorter than 12 consecutive months, but not less than six
consecutive months long
* Begins no later than July 1, 2014, and ends no earlier than 90 days
before the first day of the first plan year beginning on or after
January 1, 2015
When to begin tracking employee hours
Calendar year plans
An ALE that wants to use the look-back measurement method may need to
start measuring hours of service as early as April 3, 2014. This date
would apply if the employer wants to use a 12-month stability period
beginning on January 1, 2015, and take advantage of the maximum 90-day
administrative period. It can be helpful to work backward to determine
the applicable dates.
In this scenario…
* The stability period would run for the entire 2015 calendar year to
coincide with the plan year
* A full 90-day administrative period would run from October 3, 2014,
through December 31, 2014
* The minimum permissible transition measurement period of six
consecutive months would begin on April 3, 2014
Employers may want to set up the measurement, administrative and
stability periods to begin on the first day of the month for
administrative ease. This can be accomplished by using a shorter
administrative period. Employers would then not have to begin measuring
hours of service so early. For example, an employer with a calendar
year plan may use the following timelines:
* A transition measurement period from May 1 through October 31, 2014
* A 61-day administrative period (the months of November and December)
ending on December 31, 2014
* A full 12-month stability period from January 1 through December 31,
However, all ALEs that want to take advantage of the shorter transition
measurement period in 2014 must begin tracking employee hours no later
than July 1, 2014. For a calendar year plan, this would allow for a
six-month transition measurement period (running from July 1, 2014,
through December 31, 2014), but no administrative period.
Non-calendar year plans
In general, the ACA’s pay or play penalty goes into effect on January 1,
2015, for both ALEs with calendar year plans and ALEs with non-calendar
year plans. However, the final regulations include transition relief
that provides ALEs that have non-calendar year plans with additional
time to comply, if certain conditions are met.
Thus, employers that have non-calendar year plans may have some
additional time before they need to begin tracking employees’ hours of
service. For example, an employer with a plan year beginning April 1
that is using a 90-day administrative period may use a measurement
period from July 1, 2014, through December 31, 2014 (six months),
followed by an administrative period ending March 31, 2015.
However, an employer with a plan year beginning July 1 may not use a
six-month transition measurement period. Instead, the employer must
use a measurement period that is longer than six months to comply with
the requirement that the measurement period begin no later than July 1,
2014, and end no earlier than 90 days before the stability period. For
example, the employer may have a 10-month measurement period from June
15, 2014, through April 14, 2015, followed by an administrative period
from April 15, 2015, through June 30, 2015.
Want to learn more about how the ACA could affect your organization?
Get in touch with Paycor to learn how our solutions simplify ACA time tracking.
Source: ZyWave, Inc.
This content is intended for educational purposes only and should not
be considered legal advice.
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