NMPSIA Regional Training Meetings: Measurement Methods for ... Measurement Methods - for 2016 N… · Offering MEC coverage that is not Affordable and does not offer a Minimum Value

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July 2016

NMPSIA Regional Training Meetings:Measurement Methods for Large Employers

Nura Patani, PhDSenior Actuarial Analyst

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Overview of 4980H Penalties

Monthly Measurement Method

Look-Back Measurement Method Ongoing Employees New Employees Transitioning from New to Ongoing Employment Breaks

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Individual Shared Responsibility Penalty (Individual Mandate)Starting January 2014, a penalty on

certain individuals who fail to maintain minimum essential coverage (MEC).

If a taxpayer (or an individual for whom the taxpayer is liable) isn't covered under MEC for one or more months then, unless an exemption from the penalty applies, the taxpayer is liable for the individual shared responsibility penalty payment on his or her individual income tax return.

Two Penalties in a NutshellEmployer Shared Responsibility Penalty (4980H Penalty)Beginning with the first day of the plan

year in 2015, certain large employers may be subject to a penalty tax for failing to offer minimum essential coverage (MEC) to the required percentage of full-time employees and their dependent children to age 26 (4980H (a) $2,160 in 2016).

OROffering MEC coverage that is not

Affordable and does not offer a Minimum Value (4980H (b) $3,240 in 2016).

LET’S BE CLEAR ABOUT SOMETHING: There is NO LAW THAT REQUIRES you, as a plan sponsor/employer, to maintain MECor to offer coverage to employees. But there is a law that applies a financial penalty if youdo not do so in certain situations. In both potential penalty situations above, there may betimes when you decide that it’s a wiser financial decision NOT to maintain MEC or NOT tooffer coverage and instead pay the penalty.

LET’S BE CLEAR ABOUT SOMETHING: There is NO LAW THAT REQUIRES you, as a plan sponsor/employer, to maintain MECor to offer coverage to employees. But there is a law that applies a financial penalty if youdo not do so in certain situations. In both potential penalty situations above, there may betimes when you decide that it’s a wiser financial decision NOT to maintain MEC or NOT tooffer coverage and instead pay the penalty.

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4980h(a)

If in any month an applicable large employer (ALE) does not offer (in 2015 to 70% of its full-time employees and their dependent children up to age 26) (95% starting in 2016 ) an opportunity to enroll in minimum essential coverage (MEC), AND at least one full-time employee enrolls in the Exchange/Marketplace and receives a government subsidy to help pay for Exchange coverage, the applicable large employer is subject to a 4980H(a) penalty.

The 4980H(a) penalty in 2016 is $2,160/year times EACH of an employer’s full-time employees.− For 2015 only, if ALE must pay an (a)

penalty ALE can subtract the first 80 FT employees and starting in 2016 subtract the first 30 FT employees.

Monthly penalty is 1/12th of $2,160. Penalty amount indexed annually

4980H(b)

If the ALE meets the percentage offer to avoid the 4980H(a) penalty, yet at least one full-time employee enrolls in the Exchange/Marketplace AND that employee is able to receive a government subsidy because the minimum essential coverage (MEC) the employer offered is considered to be unaffordable(meaning in 2016 cost >9.66% of household income) and/or is not at least a 60% minimum value medical plan, or the FT employee was not offered coverage, then the employer is subject to the 4980H(b) penalty.The (b) penalty can be applied to any full-time employee that the ALE fails to offer MEC, if they receive a subsidy to buy Marketplace coverage.

The 4980H(b) penalty in 2016 is $3,240/year times each full-time employee who is certified to receive a subsidy for Marketplace coverage.

Monthly penalty is 1/12th of $3,240Penalty amount indexed annually

Penalties are calculated on a monthly basis. In any month, an ALE can be assessed the 4980H(a) penalty or the 4980H(b) penalty, but not both. And, the 4980H(b) penalty amount cannot exceed what the 4980H(a) penalty would have been, if it had been assessed. An ALE may rely on various safe harbors to determine whether medical plan coverage is affordable (referring to the required contribution for the lowest-cost employee-only medical coverage option). A plan provides minimum value if the medical plan is designed to pay on average at least 60% of expected claims costs. Final Regulations here: http://www.gpo.gov/fdsys/pkg/FR-2014-02-12/pdf/2014-03082.pdf

Quick Guide to 4980H Penalties

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Employer must offer MEC (medical coverage):

To Avoid or Minimize an Employer 4980H Penalty

That’s MinimumValue

11Common law employees

averaging 30 or more hours of service per week

To the end of the month in which child turns 26 years

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To Employee’s Dependent Children 22

In 2016 employee cost cannot exceed 9.66% of

household income (safe harbors apply)

That’s Affordable44

At least 60% actuarial value

To adequate % of Full-time Employees

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The 4980H Penalty Process

Are you alarge employer?

Are you alarge employer?

Does the large employeroffer medical plan coverage to at least 95% starting in 2016 of its FT employees (& their

dependent children)?

Does the large employeroffer medical plan coverage to at least 95% starting in 2016 of its FT employees (& their

dependent children)?

Does a FT employee of the large employer get a premium

assistance subsidy?


assistance subsidy?

4980H(a) Penalty Applies

4980H(a) Penalty Applies

YES NO YES

No PenaltyNo Penalty No PenaltyNo Penalty

Is the medical plan coverage offered to FT employees

affordable?

Is the medical plan coverage offered to FT employees

affordable?


assistance subsidy?


assistance subsidy?

4980H(b)Penalty

4980H(b)Penalty

NO YES

No PenaltyNo Penalty


assistance subsidy?


assistance subsidy?

4980H(b)Penalty

4980H(b)Penalty

Does the medical plan coverage offered to FT

employees provide minimum value?

Does the medical plan coverage offered to FT

employees provide minimum value?

NO YES

No PenaltyNo PenaltyNo PenaltyNo Penalty

STARTSTART

YES

YES

YES NO

NO

NONO

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Employer Size Date to Complywith 4980H Penalties

Caution to Employer

Less than 50 FT employees Not applicable; small employers can

purchase Marketplace coverage

Did you accurately calculate your status as an employer with less than 50 FT employees?

50-99 FT employees Plan year in 2016 using 95%

Did you meet the conditions for this one year delay in thepenalty? Must still file 1094C and 1095C IRS forms

100 or more FT employees with a calendar year plan year January 1, 2015

Are you avoiding the penalty?

100 or more FT employees with a non-calendar year plan year

Plan year in 2015Did you meet the conditions for a delay to the start of your 2015 plan year?

When Does the 4980H Penalty Apply?

Reminder: Even if an employer has a delay of 4980H penalties, IRS reporting still applies starting with the 2015 calendar year

Reminder: Even if an employer has a delay of 4980H penalties, IRS reporting still applies starting with the 2015 calendar year

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WHEN CAN an individual receive a premium assistance tax credit (a subsidy) to help buy individual insurance on the Marketplace?

The premium assistance tax credit (subsidy) is available to help pay for Marketplace insurance coverage for individuals who:

1) have a household income between 100% (133%) and 400% of the federal poverty line (FPL),

2) are not eligible for coverage through a government-sponsored program like Medicare, Tricare, Medicaid or CHIP, and

3) are not eligible for medical coverage offered by an employer OR, the only medical coverage offered by the employer is not minimum value and/or not affordable to the individual.

The premium assistance tax credit goes to the insurance company to subsidize the cost of coverage for low income individuals who purchase coverage through the Marketplace.

Easy to Get a Subsidy for Marketplace Coverage

Nationwide, HHS reports that for 2015, an estimated 85% of marketplace enrollees qualified for subsidies

Nationwide, HHS reports that for 2015, an estimated 85% of marketplace enrollees qualified for subsidies

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ACA requires each Marketplace to notify an employer whose employee was determined to be eligible for a subsidy (premium assistance tax credit or cost-sharing reductions) to buy an individual policy on the Marketplace

Starting in 2016, the Marketplace will begin sending a notice to “certain employers” about their employees who received a subsidy

If the subsidy application a person completed includes the address of the employee’s employer, a notice will be sent to that employer

First wave of notices to be mailed in the spring of 2016 after open enrollment is closed

Notice from Exchange to Employers

Example of a 2-page Colorado Exchange Notice to a Colorado employer

Page 1

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An employer may appeal a notice, for example if the employer did offer MEC that was affordable and minimum value to the employee who got a subsidy

An employer has 90 days from the date of the notice it receives to request an appeal.

– An employer appeal request form will be available on https://www.healthcare.gov/marketplace-appeals/

– Mail appeal request to: Health Insurance Marketplace 465 Industrial Blvd. London, KY 40750-0061 or fax to secure line: 1-877-369-0129.

NOTE: IRS says it will independently determine any 4980H penalty without regard to whether a notice was issued or whether the employer appealed

Notice from Exchange to Employers

Because it’s the receipt of a subsidy that triggers a 4980H penalty, it’s in the ALE’s best interest to carefully review each Notice from an Exchange and promptly and properly appeal (contest) a

subsidy if the employee is not actually entitled to receive such subsidy.

Because it’s the receipt of a subsidy that triggers a 4980H penalty, it’s in the ALE’s best interest to carefully review each Notice from an Exchange and promptly and properly appeal (contest) a

subsidy if the employee is not actually entitled to receive such subsidy.

Page 2

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Full-time means a “common law” employee who works or is credited with: An average of 30 “hours of service” per week with an employer 130 or more hours of service per calendar month

– 1,560 or more hours of service per 12 month period (but since the 4980H penalty is applied monthly, focus on 130 hours of service as FT)

– IRS math: 52 weeks x 30 hours divided by 12 =130/month

In general, if an employer reasonably expects an employee to be a full-time employee when the new employee begins work, that new employee MUST be offered coverage effective no later than the first day of the 4th

calendar month in order to avoid the 4980H penalty (maybe sooner to avoid the 90-day waiting period rule)

Examples for a new FT employee: January 1 hire date coverage by April 1 January 15 hire date coverage by May 1

New Lingo: Who is a Full-Time Employee?

Common Law: IRS looks at whether someone is an “independent contractor” or not from the perspective of the Employer’s right of control over the worker including Behavioral control, Financial control, and Type of Relationship

Common Law: IRS looks at whether someone is an “independent contractor” or not from the perspective of the Employer’s right of control over the worker including Behavioral control, Financial control, and Type of Relationship

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Hours of Service is defined in the regulations as BOTH: hours paid based on performance of duties; and paid time off (PTO) for vacation, holiday, sick time, incapacity (including

disability), layoff, jury duty, military duty or leaves of absence Hours of service excludes: Hours of service worked outside the United States Bona fide volunteer hours Federal work-study program hours, like for certain students

Hours of Service is defined in the regulations as BOTH: hours paid based on performance of duties; and paid time off (PTO) for vacation, holiday, sick time, incapacity (including

disability), layoff, jury duty, military duty or leaves of absence Hours of service excludes: Hours of service worked outside the United States Bona fide volunteer hours Federal work-study program hours, like for certain students

What are “Hours of Service”?

For hourly employees, must use actual record of hours worked and PTO credited For non-hourly employees, must use one of the following equivalency methods to

calculate hours of service: (26 CFR §54.4980H-3(b)(3))1. Actual hours of service worked or credited2. Days-worked equivalency: credit employee with 8 hours of service for each day in

which at least 1 hour was worked/credited3. Weeks-worked equivalency: credit employee with 40 hours of service for each week in

which at least 1 hour was worked/creditedMay apply different methods to different categories of non-hourly employeesAnti-abuse rule: Using an equivalency method is not allowed if it would serve to understate an employee’s hours of service and cause them to miss out on FT status

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Final Regs Clarify Certain Employee DefinitionsNew definitions in the regulations about types of employees: Seasonal Employees: Employees for which the customary annual employment is 6 months or less

generally will not be considered full-time employees.

Volunteers: Hours contributed by bona fide volunteers for a government or 501(c) tax-exempt entity, including volunteer firefighters and emergency responders, will not cause the volunteer to be considered a full-time employee. Volunteers who do not receive (or are not entitled to receive) compensation in exchange for their services do not have hours of service. Work with legal counsel to determine if your volunteers who receive expense reimbursements, stipends, contributions to employee benefit plans, nominal wages or other payments or benefits could make them “employees” and not volunteers.

Educational Employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.

Adjunct Faculty: Until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service that is reasonable in the circumstances and consistent with the employer responsibility provisions. To accommodate the need for predictability, ease of administration and the request for a “bright line” approach, the final regs allow crediting an adjunct faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time as a reasonable method, plus an hour of service per week for each additional hour outside the classroom faculty spend on required duties like office hours or faculty meetings.

Must develop reasonable method to credit hours for employees who have layover hours (airline industry) and on-call hours (The on-call employee must be credited with an hour of service for each on-call hour where: payment is made or due by the employer; & the employee must remain on the employer's premises; & if the employee's activities while on-call are so restricted that the employee is prevented from using the time effectively for his or her own purposes. )

Student work-study programs: described in detail on next slide

2/2014 Final Regs: http://www.gpo.gov/fdsys/pkg/FR-2014-02-12/pdf/2014-03082.pdf

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Whether a student’s working hours are counted for determining FT employee status depends on the nature of the student’s employment

– Unpaid student interns are not considered to have any hours of service so should not be counted as full-time, but have your legal counsel verify this status

– Hours worked by the student under a federal or state subsidized work study program will not be counted in determining whether they are full-time employees, but be sure the work study program is a valid one

If student is employed on a FT basis but can be classified as a seasonal employee (because the customary annual employment is 6 months or less) employer could use the Look-Back Measurement Method to evaluate hours worked during the measurement period

If student is hired on an hourly basis that is not seasonal, you will need to use the Look-Back Measurement Method to determine if the student reaches the level of a FT employee.

If student is hired as full-time and cannot be classified as seasonal, you MUST offer coverage to this FT employee or risk a 4980H penalty.

Caution with Student Workers

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The final regulations provide two measurement methods for large employers to use to determine whether an employee is a “full-time” employee:

Monthly Measurement MethodLook-Back Measurement Method

Two Measurement Methods Permitted

All employees (EE) are to be measured using either the Monthly Method or the Look-Back Method

If you choose NOT to use the Look-Back Measurement Method, you have, by default, selected the Monthly Measurement Method

All employees (EE) are to be measured using either the Monthly Method or the Look-Back Method

If you choose NOT to use the Look-Back Measurement Method, you have, by default, selected the Monthly Measurement Method

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Large employers generally must apply one measurement method across the entire workforce. The exception is that an employer can choose different measurement methods or use different lengths or start/end dates for measurement and stability periods for employees based ONLY on these 4 approved categories:

– Employees in different states– Union vs. non-union employees– Union employees in different/separate collective bargaining agreements– Salaried versus hourly employees

Consistency Standard for Employee Categories

REMEMBER: The determination of measurement method must be made on a uniform and consistent basis for all employees in the same govt-approved category

If the only category above that you can use is “salaried vs hourly” then you can only vary your measurement method by your salaried vs hourly employees…..and since the Monthly Method is a retrospective look at hours of service, it doesn’t protect you from a 4980H penalty for hourly employees, so: 1. ALL your employees could be measured under the Look-Back Method or, 2. Salaried employees could be measured under the Monthly Method and all other non-

salaried (hourly) employees measured under the Look-Back Method3. But it won’t work well to measure hourly employees under the Monthly Method

because it exposes you to potential 4980H penalties

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To perform the Monthly Measurement Method (a REAL-TIME method) the employer determines each employee’s status as a full-time employee or not by counting the employee’s actual hours of service each month….no averaging

If EE reaches 130 hours of service in the month they are a FT employee, and they should have had benefits offered for that entire month, or else the large employer risks a 4980H penalty for that month

Monthly measurement method works best for salaried employees, NOT hourly employees

– Because, you won’t know if the hourly person has achieved over/under 130 hours of service until the very end of that month and then it’s too late to retrospectively add coverage or terminate coverage…you risk 4980H penalties here


AGAIN, the Monthly Measurement Method does not work well for hourly employees and for hourly employees not offered coverage, this method exposes the large

employer to potential 4980H penalties. Stay tuned for a special exception to this rule for a new FT hourly employee,

explained later in the Look-Back section of this training.

AGAIN, the Monthly Measurement Method does not work well for hourly employees and for hourly employees not offered coverage, this method exposes the large

employer to potential 4980H penalties. Stay tuned for a special exception to this rule for a new FT hourly employee,

explained later in the Look-Back section of this training.

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Optional weekly rule for Monthly Measurement Method ONLY, using weekly payroll records: 120+ hours of service in a 4-week month = Full-Time

150+ hours of service in a 5-week month = Full-Time

Counting Full-Time Employees:Monthly Measurement Method

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Monthly measurement method is simple to administer but potentially dangerous (for a 4980H employer penalty) for a non-benefits eligible hourly or salaried employee In the example below, an employee normally works part-time but spikes up to

achieve 130 or more hours of service in the month

In this example, the full-time status of a non-benefits eligible employee is determined using the monthly measurement method. Assuming the large employer avoids the 4980H(a) penalty, there is a potential 4980H(b) penalty for 6 months, totaling $1,500 for the year.

Monthly Measurement Method: Ongoing Employee

Using a monthly measurement method may also be problematic for an insured medical plan where adding and dropping employees monthly causes an administrative burden on the insurer (and on the COBRA administrator who is sending lots

of COBRA election notices) Ja

nuary

Febru

aryMarc

hAprilMay Ju

ne

July

AugustSep

tember

October

November

December

Total

Hours of service attained as of the end of the month

107.9 132.6 131.3 148.2 119.6 0.0 0.0 107.9 144.3 107.9 154.7 143.0

Full-Time Status under Monthly Measurement Method

Not FT FT FT FT

Not FT

Not FT

Not FT

Not FT FT

Not FT FT FT

Potential 4980H(b)Penalty ($3,000 / 12)if no benefits offered for the month

$0 $250 $250 $250 $0 $0 $0 $0 $250 $0 $250 $250 $1,500

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An employer is not subject to a 4980H penalty for the first 3 full calendar months beginning with the first full month in which the NEW employee is otherwise eligible for an offer of coverage (a new hire safety zone – it’s a limited non-assessment period or LNAP) (See page 8584 of final regs)

Example: John is hired into a FT position on March 4th. To avoid a 4980H penalty, coverage must be offered and if elected, must become effective no later than July 1:

Monthly Measurement Method: New Employee

FT employee

hired March 4th

April May June

Coverage for the FT EEmust begin

July 1

Large employer is safe from the 4980H penalty during this 3-month period

Warning to watch out for the 90-day waiting period rule

Large employer safe from the 4980H

penalty during this very first partial

month period of 3/4 to 3/31

Cannot apply this new hire safety zone (LNAP) more than once per period of employment unless the individual qualifies as a NEW employee again

Cannot apply this new hire safety zone (LNAP) more than once per period of employment unless the individual qualifies as a NEW employee again

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Very simply, the Look-Back Measurement Method is a “wait and see” method. The large employer determines the status of an employee as FT or not for a future period (called a stability period) based on the # of hours of service the employee achieved in a prior period (called the measurement period)

Look-Back Method works well for Hourly employees(because the monthly method won’t protect employer from the 4980H penalties with these types of hourly employees)

Look-Back method is NOT available for NEW employees who are reasonably expected to work full time because they MUST be offered coverage by the first day of the 4th calendar month after their date of hire to avoid a 4980H penalty (Warning to watch out for the 90-day waiting period rule)

Look-Back Measurement Method

Measurement Periodto determine if FT

Admin Period Stability Period

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Using the Look-Back Measurement Method is optional, it is NOT required, but it sure may come in handy to help you avoid a 4980H penalty

Although the use of the Look-Back Method is complicated and administratively burdensome, it does afford more flexibility and certainty than a strict monthly measurement method calculation

Under the Look-Back Method, long measurement periods help to diluteweeks with lots of hours of service


Employers may use different measurement and stability periods from year to year, but remember: A measurement or stability period may not be changed once the

measurement period has begun You can change measurement methods and durations annually, if desired Stability periods must start on the 1st of a month and end on the last day of a

month, whereas Measurement periods can be mid-month to mid-month

Employers may use different measurement and stability periods from year to year, but remember: A measurement or stability period may not be changed once the

measurement period has begun You can change measurement methods and durations annually, if desired Stability periods must start on the 1st of a month and end on the last day of a

month, whereas Measurement periods can be mid-month to mid-month

THE LOOK-BACK MEASUREMENT METHOD ADDS PREDICTABILITY

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There are two types of Look-Back Measurement periods: Initial: used to track hours for “new” employees Standard: used to track hours for “ongoing” employees

Both types of Look-Back Measurement periods include: A Measurement Period An (optional) Administrative Period A Stability Period

During the Measurement Period the employer tracks the employee’s hours of service.During the Administrative Period the employer calculates which employees were full-

time, notifies them and offers them coverage during the upcoming Stability period. During the Stability Period the employer offers coverage to employees who were full-

time during the Measurement Period and does not offer coverage to employees who did not reach FT status during the Measurement period.


Measurement Periodto determine if FT

Admin Period Stability Period

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Look-Back Method: New & Ongoing Employees

More terms to remember:

New Employee is one who has been employed by an employer for less than one Standard Measurement Period

Ongoing Employee is one who has been employed by an employer for at least one Standard Measurement Period

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Let’s start with ONGOING employees and discuss STANDARD periods


IMPORTANT POINT

Ongoing employees must be in a STABILITY PERIOD on the first day of the 2015 plan year to have an ALE avoid

the 4980H penalty.

This means that the measurement period associated with a 2015 ongoing employee stability period occurs

back in 2014

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DETERMINING FULL-TIME EMPLOYEE STATUS

Source: Congressional Research Services (CRS) based on IRS Notice 2012-58 Determining Full-time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage.

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Period is at least 3 months & not more than 12 consecutive calendar months Employer can choose the months when the standard measurement period starts and

ends. Examples: calendar year, plan year, or period ending just before open enrollment starts.

Must be uniform for all employees in same category. Permissible 4 categories = each group of collectively bargained employees covered by a separate collective bargaining agreement, collectively bargained and non-collectively bargained employees, employees working in different States, salaried and hourly employees.

Begins after the measurement period and applicable administrative period If an employee averages at least 30 hrs of service/week in the standard measurement

period, the standard stability period is the longer of – 6 consecutive calendar months or the length of the standard measurement period

If an employee does NOT average at least 30 hrs of service/week in the standard measurement period, the standard stability period must begin immediately after the end of the standard measurement period and any admin. period, and cannot be longer than the standard measurement period.

Optional period of up to 90 days, between the measurement and stability periods. Admin period must overlap prior stability period so no gap in coverage. 90 days is NOT same as 3 months

Look-Back: Rules for ONGOING Employees

Standard Measurement Period (SMP)

Standard Stability Period

(SSP)

Administrative Period (AP)

An “ongoing employee” is an employee (EE) who has been employed for at least one complete standard measurement period. (26 CFR §54.4980H-3(d))

ALEs will probably want to establish a standard measurement period and admin period that causes their stability period to correspond to their medical plan year

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The purpose of the Standard Administrative Period is to allow employers time to total and average the hours of service of each

employee during the Standard Measurement Period, offer enrollment to eligible FT employees and, for employees who elect coverage, assure coverage starts day one of the Standard Stability Period.

An Administrative period must overlap the previous stability period to prevent gaps in coverage. As soon as one Standard Measurement Period ends the next one begins, so the

Standard Administrative Period overlaps the end of the prior Standard Stability Period and the beginning of the next Standard Measurement Period.

Look-Back: Standard Administrative Period Rules

As you can see, you

are ALWAYS

measuring an

employee

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Most employers will want a 12-month measurement period for ongoing employees (EE) because:a) You calculate average weekly hours of service less frequently;b) Longer measurement periods dilute lots of hours of services and tend to lead to

lower average hours of service; andc) More opportunity to reduce work hours near the end of a measurement period if

average weekly hours during the measurement period start to increase

The downside of a 12-month look-back measurement period means a longer stability period where if EE reached FT status, coverage will need to be offered for commonly a 12-month period (regardless of hours worked during the stability period).

– A 6-month Look-Back measurement period means coverage offered only for a 6-month period, but you measure more often and also cannot dilute lots of hours of service

Most employers want their stability period to align with the start of their benefits plan year because:a) Ease of administrationb) Aligns with annual open enrollment periodc) Helps with budgeting costs for benefits

Look-Back: Using 12 Months is Common

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12-0-12 Look-Back for Ongoing Employees (January)

For ONGOING employees:M 12-month Standard Measurement Period (SMP)A 0-month Standard Administration Period (SAP)S 12-month Standard Stability Period (SSP), if full time

January February March April May June July August September October November December

M1 M1 M1 M1 M1 M1 M1 M1 M1 M1 M1 M1

S1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1M2 M2 M2 M2 M2 M2 M2 M2 M2 M2 M2 M2




Plan Year 2018

Look-Back Period Illustration for January 1 Plan Year

Plan Year 2014

Plan Year 2015

Plan Year 2016

Plan Year 2017

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M1

M1 M1 M1 M1 M1 M1 M1 M1 M1 M1 M1 A1M2

S1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1M2 M2 M2 M2 M2 M2 M2 M2 M2 M2 M2 A2

M3


M4


M5

Plan Year 2017


Plan Year 2013

Plan Year 2014

Plan Year 2015

Plan Year 2016

35




M1 M1

M1 M1 M1 M1 M1 M1 M1 M1 M1 M1 A1 A1M2 M2

S1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1M2 M2 M2 M2 M2 M2 M2 M2 M2 M2 A2 A2

M3 M3


M4 M4


M5 M5

Plan Year 2017


Plan Year 2013

Plan Year 2014

Plan Year 2015

Plan Year 2016

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A large employer with a January plan year who holds open enrollment during October might hope to have an Administrative Period begin October 1st (when their Open Enrollment is held). This is not permissible because the period October 1 to December 31 is 92 days. This

exceeds the maximum of 90 days allowed for an Administrative Period. Remember, 3 months is not always a 90-day time period

An alternate solution to stay within the 90 day duration for an Admin period might be to choose any date from October 3rd through the end of December as the start of the Administrative Period where Open Enrollment is held.

While there is no requirement to hold Open Enrollment during the Administrative Period, it seems to make sense that by the time you add up the hours to determine if employees have reached full-time status, you would proceed with allowing those employees to participate in Open Enrollment. Save proof you offered enrollment.

Why not a 12-3-12 Look-Back for Ongoing Employees?

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For ONGOING employees to match up to your 12-month plan year, consider: 12 month standard measurement period + 2 month admin + 12 month standard stability period

OR 12 month standard measurement period + 78-day admin + 12 month standard stability period

– For instance 12-month standard measurement period from October 15 to October 14 + 78-day admin from October 15 to December 31 + 12 month standard stability period from January 1 to December 31 to match up to a January plan year

– Note: October 3 is earliest admin period could start and not violate the 90-day admin rule…this would push standard measurement period back 12 more days to October 3 through October 2 with a 90-day admin period of October 3 to December 31.

For ONGOING employees to match up to your 12-month plan year, consider: 12 month standard measurement period + 2 month admin + 12 month standard stability period

OR 12 month standard measurement period + 78-day admin + 12 month standard stability period

– For instance 12-month standard measurement period from October 15 to October 14 + 78-day admin from October 15 to December 31 + 12 month standard stability period from January 1 to December 31 to match up to a January plan year

– Note: October 3 is earliest admin period could start and not violate the 90-day admin rule…this would push standard measurement period back 12 more days to October 3 through October 2 with a 90-day admin period of October 3 to December 31.

Ideal Ongoing Employee Look-Back Period?

Look below for example for Standard Measurement periods using 12M-90D-12M

Standard Measurement Period - (12)(Oct 3, 2014 – Oct 2, 2015)

Standard Administrative Period - (90 days)(Oct 3, 2015 – Dec 31, 2015)

Standard Stability Period - (12)(Jan 1, 2016 – Dec 31, 2016)

(Oct 3 –Oct 14)

Run & Analyze Reports

(Oct 15 –Nov 15)

Open Enrollment

Period

(Nov 16 – Dec 31)

Process Elections for new Plan Year

38

Standard Measurement Period

12 months

Standard Admin Period(90 days max)

# of admin days

Standard Stability Period

12 months April 2 to April 1 April 2 to June 30 90

July 1 to June 30April 15 to April 14 April 15 to June 30 77May 1 to April 30 May 1 to June 30 61June 1 to May 31 June 1 to June 30 30

Oct 2 to Oct 1 Oct 3 to Dec 31 90

Jan 1 to Dec 31Oct 15 to Oct 14 Oct 15 to Dec 31 78Nov 1 to Oct 31 Nov 1 to Dec 31 61Dec 1 to Nov 30 Dec 1 to Dec 31 31

July 3 to July 2 July 3 to Sept 30 90

Oct 1 to Sept 30July 15 to July 14 July 15 to Sept 30 78Aug 1 to July 31 Aug 1 to Sept 30 61Sept 1 to Aug 31 Sept 1 to Sept 30 31

Quick Reference to Look-Back Periods

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DETERMINING FULL-TIME EMPLOYEE STATUS

Source: Congressional Research Services (CRS) based on IRS Notice 2012-58 Determining Full-time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage.

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Variable hour, part-time, and seasonal employees are the only new hires whose status can be determined using an initial measurement period:

Part-time Employees: Employees for whom, based on facts and circumstances on their hire date, the employee is reasonably expected to average less than 30 hours of service per week during their Initial Measurement Period.

Variable Hour Employees: Employees for whom, based on facts and circumstances on their hire date, it cannot be determined whether the employee is reasonably expected to average at least 30 hours of service/week during an Initial Measurement Period

Seasonal Employees: Employees hired into positions in which the customary annual employment is 6 months or less. For example, the seasonal worker averages 40 hrs of service/week for 3 months of the year only (Oct, Nov and Dec)

– Employees hired to work for more than 6 months but fewer than 12 months cannot be considered seasonal.

– Seasonal employees who work more than 30 hours of service/week “in season” (even when the season lasts many months) may still be excluded from full-time status if they do not average at least 30 hours of service/week over the entire Initial Measurement Period.

Look-Back Method: Part-time, Variable Hour, & Seasonal Employees

Part-time, variable hour and seasonal employees are usually HOURLY employees, not salaried

Part-time, variable hour and seasonal employees are usually HOURLY employees, not salaried

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At least 3 months and not more than 12 consecutive calendar months Employer can choose when the measurement period begins such as actual hire date

OR first day of first calendar month after hire date OR 1st payroll period following the hire date.

Measurement duration must be uniform for all employees in same category. Permissible 4 categories = each group of collectively bargained employees covered by a separate collective bargaining agreement, collectively bargained and non-collectively bargained employees, employees working in different States, salaried and hourly employees.

Stability period must be the same length as for ongoing employees If an employee averages at least 30 hrs of service/week in the initial measurement

period, the initial stability period must be at least 6 consecutive months that is no shorter than the initial measurement period

If an employee does NOT average at least 30 hrs of service/week in the initial measurement period, the initial stability period must not be more than 1 month longer than the initial measurement period and, must not exceed the remainder of the first entire standard measurement period (plus any associated admin period). This allows an 11-2-12 duration option.

Optional period of up to 90 days before the stability period, that: Includes the period from the hire date to the date coverage starts under the plan,

excluding the initial measurement period Initial measurement period plus administrative period together cannot extend

beyond the last day of the first calendar month that begins on or after the one-year anniversary of the new employee’s hire date (the 13-month rule = 13 months and a fraction).

Admin period must overlap prior stability period so no gap in coverage

Look-Back: Rules for NEW Part-time, Variable Hour or Seasonal EEs

Initial Measurement Period (IMP)

Initial Stability Period

(ISP)

Administrative Period (AP)

A “new employee” is an employee (EE) who has not been employed for at least one complete standard measurement period. (26 CFR §54.4980H-3(d)(3))

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For NEW employees, these are options that consider the “13 month” rule: 11 month initial measurement period + 2 month admin + 12 month initial stability period (11 +2 = 13

months)*** 12 month initial measurement period + 0 month admin + 12 month initial stability period (12 +0 = 12

months) 12 month initial measurement period + 1 month admin + 12 month initial stability period (12 +1 = 13

months)

For NEW employees, these are options that consider the “13 month” rule: 11 month initial measurement period + 2 month admin + 12 month initial stability period (11 +2 = 13

months)*** 12 month initial measurement period + 0 month admin + 12 month initial stability period (12 +0 = 12

months) 12 month initial measurement period + 1 month admin + 12 month initial stability period (12 +1 = 13

months)

Ideal NEW Employee Look-Back Period?

***For new hires, some employers are wanting an 11-month IMP 2-month IAP 12-month ISP

But, for employees hired on the 2nd of any month other than January, caution with months with 31 days clustered together because the 90-day admin period rule

could be exceeded

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The Initial Measurement Period for each NEW employee is to begin:a) on their date of hire or, b) more practically, on the first day of the month after their hire date

CAUTION: Employees hired ON the first day of a month must have their Initial Measurement Period begin ON their date of hireStarting on the first day of the next month means that if using a 12-month

Initial Measurement Method you only have twelve 12-month Initial Measurement Periods to track for new employees during the year

Look-Back: Initial Measurement Method

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First: One of the changes in the final rule is that you have to count the days BEFORE the initial measurement period (IMP) begins as part of the Admin Period. The administrative period associated with the IMP must include BOTH: any days between the new employee’s start/hire date and the start of the IMP, plus the days between the end of the IMP and the start of the initial stability period (ISP).

Second: don’t forget the “13-month and a fraction” rule for certain new employees For NEW PT, variable hour and seasonal employees who are measured as FT in their IMP, the

total combined time of the Initial Administrative Period (IAP) & the Initial Measurement Period (IMP) cannot exceed 13 months plus a fraction of another month, (the fraction representing the days of the month of their date of hire).

This means that when an employer selects a 12-month Initial Measurement Period, the Initial Administrative Period may not be longer than 1 month plus a partial month.

Caution in Calculating an Initial Administrative Period

Admin Period

Initial Measurement Period (IMP)

Admin Period

Initial Stability

Period (ISP)

Hired 3-3-15

4-1-15 to 3-31-16 4-1-16 to 5-31-16 6-1-16 to 5-31-17

28 days of Admin period

A 12-month period Max 62 days of Admin permitted since 62 plus 28 = 90 days

A 12-month period

But if NEW employee worked FT during the Initial Measurement Period you must offer coverage no later than 13 months and a fraction after the IMP, so in this

example, coverage must start by 5-1-16

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Even if you offer benefits to an employee who does NOT average 30 hours of service or more per week, you should still be measuring this employee under a Measurement Method:

A. to prove to the IRS that they are not really full-time and you do not need to factor them into your 70%/95% 4980H (a) calculation and

B. in case the employee transitions to a different position and you want to terminate benefits and you need proof why they did not achieve enough hours of service to qualify for benefits in the next position

All Hourly Employees Should Be Measured

Look-Back Method Reminder: If an employee is measured as FT in a measurement period, that employee has earned FT status for the entire corresponding stability period.

If in the stability period you offered coverage to that FT employee, coverage is NOT to be cancelled during the stability period even if the employee is averaging less than 30 hours of service/week in that stability period.

Look-Back Method Reminder: If an employee is measured as FT in a measurement period, that employee has earned FT status for the entire corresponding stability period.

If in the stability period you offered coverage to that FT employee, coverage is NOT to be cancelled during the stability period even if the employee is averaging less than 30 hours of service/week in that stability period.

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Is it true that an employer might have to continue to offer coverage to an employee for up to a year even though that employee is not actually working full-time? Yes….an employee could have worked up to FT during a 12-month

measurement period and has therefore EARNED coverage for the entire 12-month stability period even though at some point in that 12-month stability period the employee reduced hours so they are only working part-time.

Look-Back Method: Common Situation

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Look-Back: Going from NEW to ONGOING

Next slides show a NEW variable hour/part-time/seasonal employee using a 12 month Look-Back Initial Measurement Period and how you need to overlap it with the Standard Measurement Period of Ongoing Employees in order to transition the new employee into the same Standard Measurement period as Ongoing employees

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Lookback Period Illustration for July 1 Plan YearNew variable hour/seasonal EE during initial measurement period

Assume new employee starts between 10/2/14 & 11/1/14 so that their initial measurement period can begin on 11/1/14

For ONGOING employees: For NEW variable hour, seasonal, and PT employees:M 12-month Standard Measurement Period (SMP) IMP 12-month Initial Measurement Period (IMP)A 2-month Standard Administration Period (SAP) IAP 1-month Initial Administration Period (IAP)S 12-month Standard Stability Period (SSP), if full time ISP 12-month Initial Stability Period (ISP), if full time

July August September October November December January February March April May June

M1 M1

IMP IMP IMP IMP IMP IMP IMP IMPM1 M1 M1 M1 M1 M1 M1 M1 M1 M1 A1 A1

M2 M2

IMP IMP IMP IMP IAP ISP ISP ISP ISP ISP ISP ISPS1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1 S1M2 M2 M2 M2 M2 M2 M2 M2 M2 M2 A2 A2

M3 M3

ISP ISP ISP ISP ISP


M4 M4

Plan Year 2013 - 2014

Plan Year 2014 - 2015

Plan Year 2015 - 2016

Plan Year 2016 - 2017

During period when stability periods overlap, remember:“You keep what you earn” and “Full-time trumps NOT full-time”

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In order to facilitate a seamless transition from the Initial Look-Back Method to the Standard Look-Back Method, a NEW employee’s hours of service must be tracked in BOTH the Initial Measurement period AND in the Standard Measurement period. How does that work: Employer tracks the new employee using the Initial Measurement Period.

Then, on the first day of the Standard Measurement Period (SMP) that begins on/after the new employee’s date of hire*, the employer also starts tracking the newly hired employee’s hours of service under the Standard Look-Back Method.

Thus the employer is tracking the newly-hired employee’s hours of service under the Initial Measurement period for one full cycle and is also tracking that same employee under the Standard Measurement period.– *it could happen that a Standard Measurement Period (SMP) starts before the start of the

Initial Measurement Period (IMP) such as when the IMP starts on the first day of the month following the date of hire and the SMP starts on the date of hire.

Look-Back: Transitioning New EE to Ongoing EE

Remember, if new employee is measured as FT in their Initial Measurement Period (IMP), coverage must be offered at the start of month 13

Remember, if new employee is measured as FT in their Initial Measurement Period (IMP), coverage must be offered at the start of month 13

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While you are performing your initial measurement period for a new hire, you must simultaneously apply your ongoing employee standard measurement period, because: New hires MUST BE MEASURED in the first complete Standard Measurement

Period (SMP) that begins on or after their date of hire. Example: The large employer has a January plan year and has elected to use for

Ongoing employees, a 12-month Standard Measurement Period, a 2 month Admin Period, and a 12-month Standard Stability Period. This example assumes open enrollment is held during November for the start of a January plan year.

Look-Back: New Hire Overlap of Measurement Periods

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2014 2015 2016 20172014 2015 2016 2017

If hired on or before November 1, 2014:

November 1 - October 31 =1st Standard Measurement Period following date of hire

Nov 1 - Dec 31

January 1 - December 31 =Standard Stability Period

If hired on or before November 1, 2015:

November 1 - October 31 =1st Standard Measurement Period following date of hire

Nov 1 - Dec 31

January 1 - December 31 =Standard Stability Period

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Suppose the new employee does not work full-time during their Initial Measurement Period but does work full-time during the first Standard Measurement Period that begins on or after their hire date.


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The regulations clarify that if an employee is reasonably expected at his or her hire date to be a full-time employee averaging 30 hours of service or more per week (and is not a seasonal employee), the employee must be treated as a full-time employee and coverage must be offered in accordance with the 4980H rules, unless the period of employment is to be shorter than 3 months.

Reminder

But what about a NEW HOURLY EMPLOYEE that will be working full time, when all of my ongoing hourly

employees are measured using the

Look-Back Measurement Method?

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While the Monthly measurement method works best for salaried employees, NOT hourly employees, there is one situation where the Monthly Measurement Method MUST be used for hourly employees:

If the ALE hires a NEW hourly employee that is expected to be a FT employee averaging 130 or more hours of service/month, the ALE is to measure that employee under the Monthly Measurement Method until the completion of the first Standard Measurement Period (SMP) on or after the employee’s date of hire. (At this point the employee is an ongoing employee)

See next slide for example.

Also explained on page 8588 (left column) of the final regs.

While the Monthly measurement method works best for salaried employees, NOT hourly employees, there is one situation where the Monthly Measurement Method MUST be used for hourly employees:

If the ALE hires a NEW hourly employee that is expected to be a FT employee averaging 130 or more hours of service/month, the ALE is to measure that employee under the Monthly Measurement Method until the completion of the first Standard Measurement Period (SMP) on or after the employee’s date of hire. (At this point the employee is an ongoing employee)

See next slide for example.

Also explained on page 8588 (left column) of the final regs.

Look-Back: New FT Hourly Employee

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M1 M1

M1 M1 M1 M1 M1 M1 M1 M1 M1 M1 A1 A1M2 M2


M3 M3


M4 M4

Monthly Measurement

Method

Monthly Measurement

Method

Hired 4/15/14 as a FT Hourly

EELNAP LNAP LNAP

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Look-Back Period Illustration for January 1 Plan Year(New full-time hourly employee)

Plan Year 2013

Plan Year 2014

Plan Year 2015

Plan Year 2016

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Monthly Measurement

Method

Look-Back: New FT Employee

Here’s the first SMP following the date of hire

Continue to use Monthly Measurement Method to determine full-time status during Admin Period, then convert to

PURE Look-Back from here on

Since this is a FT employee you must offer coverage by the 1st day of the 4th

month after date of hire, or sooner to avoid violating the 90-day waiting period

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For rehired employees or employees returning from a leave of absence the employee will be credited with zero hours of service during the period of non-employment or unpaid leave of absence. (26 CFR §54.4980H-3(c)(4)(i-ii))

However,

Leave of Absence or Break in Service

These break in service rules may be used under either measurement method

*Good News: when treated as a “NEW” employee, the employer can restart the initial measurement period OR apply a new 90-day waiting period

If the period of absence with no hour of service is AT LEAST 13 consecutive weeks (at least 26 weeks for educational organizations), then:

employee may be treated as a NEW* employee upon return to

employment

If the period of absence with no hour of service is LESS THAN 13 consecutive weeks (less than 26 weeks for educational organizations), but more than 4 consecutive weeks, then:

employee MUST be considered a CONTINUING (ongoing)

employee upon return to employment

You can also use the RULE OF PARITY that says if the period of absence with no hours of service is between 4 and 13 weeks (or between 4 and 26 weeks for educational organizations) AND the break is longer than the employee’s period of employment before the break, the employee may be treated as a NEW* employee.

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Under the RULE OF PARITY, an employer can treat a worker returning from a leave of absence as a NEW employee if: a) the break lasted at least 4 weeks ANDb) the break was longer than the employee’s period of employment before

the break.

– For example, if a new employee works for 6 weeks, is on unpaid leave for 8 weeks, and then returns to work, the employee could be treated as a new employee upon return to work because the 8-week break in service lasted at least 4 weeks, and the break in service lasted longer than the employee’s 6 weeks on the job.

Leave of Absence “Rule of Parity”

Rule of Parity: (26 CFR §54.4980H-3(c)(4)(v))

IMPORTANT NOTE:You count any and all unpaid leave (i.e., periods with no hours of service) toward the 13-week rule (or the 26-week rule for educational organizations).

If the employer has to treat the employee as an “ongoing” employee when s/he returns from leave (because the break was too short to be able to call the employee a “new” employee), then apply the appropriate rules for measuring hours during the applicable leave period.

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If a break in service is not long enough to warrant treating the returning employee as a NEW hire, the employee is considered to be a “continuing” employee

Rules for Continuing Employee Status If the employee is eligible for coverage (either because of being measured under

the monthly measurement method or is in a stability period), the employer must reinstate coverage as soon as practical.

If a returning employee had FT status before the break and must be treated as a continuing employee upon return to work because the break was not long enough to establish a new employee status, then: a) employee must be offered coverage upon resumption of service if offered as of

the first day the employee is credited with an hour of service or, b) if later, as soon as “administratively practicable” (which means no later than

the first day of the month following the resumption of service). If an employee was in a look-back measurement period, the employee will return

to the measurement period and the employer can record zero hours of service while the employee was on the break of service, unless the law requires the time to count. For example, the ALE must credit hours of service while an employee is on an FMLA leave.

Not a NEW Employee When Returning from a Break in Service

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For employers using the Look-Back Method:

When employees have to be treated as continuing employees (because their break isn’t long enough under the rules just stated), the employee is essentially put back into whatever measurement and stability periods they would have been in had they NOT had the break. For purposes of the measurement period into which they are added, there are

special rules for crediting hours during the break.

– These rules apply if the break included periods of unpaid FMLA leave, unpaid jury duty or unpaid USERRA leave

– These rules also apply for educational institutions

See the next two slides…

Employment Breaks

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Under the Look-Back Measurement Method, an ALE must consider whether a break-in-service for a continuing employee was for a special unpaid leave. Special unpaid leave includes unpaid leaves under FMLA, USERRA and jury duty. If any part of the break-in-service was for a special unpaid leave, an ALE must average the

employee’s hours of service during the SMP or IMP in a manner that accounts for that special unpaid leave.

For special unpaid leaves, the ALE to calculate an employee’s average hours of service either by: 1. Excluding any special unpaid leave during the measurement period and using the

average for the rest of the measurement period as the average for the entire measurement period, (ignore those days or weeks of unpaid leave in calculating the average weekly hours of service so the unpaid special leave is ignored in both the numerator and denominator of the ratio used to calculate the employee’s average hours of service per week during the measurement period), or

2. Crediting hours of service for any periods of special unpaid leave at a rate equal to the average weekly rate the employee was credited during the weeks in the measurement period that were not part of the special unpaid leave.

This requirement to account for special unpaid leave applies only to returning employees who must be treated as continuing (ongoing) employees and not to returning employees treated as “new” employees

There is no limit on the number of hours of service required to be excluded or credited, like there is with a break in service for an educational organization

Special Unpaid Leave of Absence: FMLA, USERRA, Jury Duty

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Averaging Method for Special Unpaid Leave is ONLY for Educational Organizations(26 CFR §54.4980H-3(d)(6)(ii)(B))

When calculating average hours of service to determine whether an employee under the Look-Back Method is a FT employee, the regulations permit educational organizations to take either of two approaches with respect to employment break periods of at least 4 consecutive weeks (e.g., summer/winter break periods):

1) employment break period may be excluded when calculating average hours during the measurement period (meaning look only at the academic year for avg. hours of service); OR

2) employee may be credited with hours of service during the employment break period at a rate equal to his/her average hours of service during non-break periods

When calculating average hours of service where employee is paid, or entitled to payment, no more than 501 hours of service during employment break periods are required to be excluded (or credited) by an educational organization per employee each calendar year. Thus, shorter breaks will be treated as "hours of service" to the extent they are paid.The rules governing employment break periods for educational organizations apply only to an employee treated as a continuing employee upon the resumption of services, and not to an employee treated as terminated and rehired.

Break in Service for Educational Organizations using the Look-Back Method: e.g. summer/winter break

Cannot use this employment break calculation for employees under a Monthly Measurement Method

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Let’s add a summer break…


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SITUATIONMONTHLY

MEASUREMENT METHODLOOK-BACK

MEASUREMENT METHOD

Break in Service such as rehiring a former employee or employee returns from anunpaid leave of absence

May treat as NEW employee if 13* or more weeks with no hours of service. (*Employees of educational organizations

must use 26 or more weeks)1, 2

May treat as NEW employee if 13* or more weeks with no hours of service.

(*Employees of educational organizations must use 26 or more weeks) 1, 2

Special unpaid leave (FMLA, USERRA military leave and jury duty)

Not applicable(ALE will record zero hours of service during

leave)

Ignore the period of leave when averaging hours OR calculate at the same average hours rate when employee was not on

leaveFor employees of educational organizations with an employment break of 4 or more consecutive weeks

Not applicable(ALE will record zero hours of service during

leave)

Ignore period of break when averaging hours OR calculate at the same average hours rate when employee was not on

leave (up to max of 501 hours) not counting any special unpaid leave

Footnotes:1: Rule of parity applies here2: When treated as a NEW employee, the employer can restart the initial measurement period or apply a new 90-day waiting period for FT employees

Regs do not provide guidance on how an employee should be treated (as FT or not FT ) during a break in service.

Quick Reference to Breaks and Measurement MethodsFirst, use Break in Service rule to see if returning employee can be classified as a NEW employee. Next, see how to handle the counting of hours during the leave by referencing the Special unpaid leave or Educational organization break rules.First, use Break in Service rule to see if returning employee can be classified as a NEW employee. Next, see how to handle the counting of hours during the leave by referencing the Special unpaid leave or Educational organization break rules.

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Don’t stop measuring your hourly employees just because you offered them benefits because, they could request a position change and you need to know if they are in a measurement period or stability period and their hours of service so you can determine if they are to be able to continue benefits or not.

It’s Important to Measure All Employees

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Change in employment status DURING the initial measurement period (IMP): If a new PT, variable hour or seasonal employee, experiences a

change in employment status (position change) BEFORE the end of the initial measurement period such that, if the employee had begun employment in the new position, the employee would have reasonably been expected to be employed on average at least 30 hours of service per week, to avoid a 4980H penalty the employer must offer coverage before the first day of the 4th full calendar month following the position change (or, if earlier and the employee averages 30 or more hours of service per week during the initial measurement period, the first day of the first month following the end of the initial measurement period (including any optional administrative period associated with the initial measurement period)).

Employee Changes Positions in the IMP

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Changing positions from one position to another when both positions are measured under the Look-Back method is easy….just keep measuring the employee. But remember, when an employer uses the “Look-Back" method to

determine which employees are full-time, the employer is no longer free to simply move an employee from full-time-benefited status to part-time-non-benefited status and vice versa, without referencing the employee’s measurement and stability periods, or else the ALE risks a 4980H penalty.

Because of the rules of the Look-Back measurement method, in some cases, an employer may need to keep that employee on the medical plan despite the fact that the employer moved the employee to part-time status or the employee asked to move to part-time status.

– The employer may have to keep a part-time employee on the medical plan for the remainder of their current stability period or the remainder of the current stability period and the next stability period in order to avoid a 4980H penalty. This can be up to a year and a half in certain situations.

Changing Positions within an Employer

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Change from Monthly method to Look-back method For the remainder of the stability period in which the change occurs, continue

monthly method unless the employee would have had full-time status for the stability period if the look-back method had applied

For the next stability period in the new position, use both methods and treat as full-time if the employee would have been full-time under either method

Thereafter, the look-back method applies

Change from Look-back method to Monthly method For remainder of the stability period in which the change occurs:

– a. If the status was full-time, continue as full-time – b. If the status was part-time, then employer may choose between continuing

as part-time or beginning the monthly method To determine status for the next stability period, measure under both methods and

treat as full-time if the employee was full-time under either method Thereafter, the monthly method applies

Changing Positions in a NutshellRefer to page 8595 in final regs

For more guidance on measuring employees with a change in position, seeIRS Notice 2014-49 (released 9-18-14) at http://www.irs.gov/pub/irs-drop/n-14-49.pdf

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The requirement to offer health coverage applies only as long as a FT employee continues working for the employer

For example, a new employee is determined to be full-time during the Initial Measurement Period. During the Initial Administrative Period, health benefits are offered and the employee elects coverage. The new employee terminates employment 3 months into the Initial Stability Period. Health coverage may stop for the terminated employee, but the employee must be offered COBRA.

Reminder About COBRA

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Questions?

Documents

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