Change in Employment Status During the Initial Measurement Period

Question:  How does an employee’s change to a full-time position during the initial measurement period affect eligibility for medical coverage?

Compliance Team Response:

Reminder: Very Different Approach Depending on Measurement Method

There are two different approaches for an applicable large employer (ALE) subject to the ACA employer mandate pay or play rules to determine employees’ full-time status:

  1. The monthly measurement method; or
  2. The look-back measurement method.

In general, employers with primarily full-time eligible workforces are best suited for the monthly measurement method.  Employers with employees whose hours fluctuate above and below 30 hours of service per week will generally rely on the look-back measurement method because it provides greater predictability/stability for those workforces.

For a more detailed summary of the pros and cons of each measurement method, see here: http://www.theabdteam.com/blog/the-dark-side-of-the-aca-health-information-reporting-industry/

The measurement, administrative, and stability periods are relevant only to the look-back measurement method. They do not apply to the monthly measurement method.

Look-Back Measurement Method: Initial Measurement Period Rules for New Variable, Seasonal, and Part-Time Employees

The look-back measurement method permits only new variable hour, seasonal, and part-time employees to be placed into an initial measurement period upon hire to determine full-time status.

For these new hires, the initial measurement period is typically 11 or 12 months.  The limit on the combined length of the initial measurement period and initial administrative period is 13 months (plus a partial month for a mid-month hire).  This combined initial measurement/administrative period before the new hire reaches a stability period is referred to as a “limited non-assessment period” (i.e., a period during which no ACA employer mandate pay or play penalties will apply under certain conditions).

There are four classifications for new hires:

  • New Full-Time Employees: No Initial Measurement Period

A new hire who is reasonably expected at the employee’s start date to be a full-time employee (i.e., average 30 hours of service per week), and is not a seasonal employee, is considered a new full-time employee.  Factors include whether the prior person in the position averaged 30 hours of service per week, and whether the job was advertised/communicated as requiring 30 hours of service per week.

For new full-time employees, employers must offer coverage to be effective no later than the first day of the fourth full calendar month of employment to avoid potential pay or play penalties.  There is no initial measurement period.  Employees will need to be offered an “effective opportunity to elect to enroll” in coverage sufficiently in advance of that effective date for the offer of coverage to be valid.

  • New Variable Hour Employees: Initial Measurement Period

A new hire for whom the employer cannot determine whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period is a variable hour employee.  Caution: The employer may not take into account the likelihood that the employee may terminate employment before the end of the initial measurement period.

  • New Seasonal Employees: Initial Measurement Period

An employee who is hired into a position for which a) the customary annual employment is six months, and b) the period of employment begins each calendar year in approximately the same part of the year (such as summer or winter) is a seasonal employee.

  • New Part-Time Employees: Initial Measurement Period

A new hire who is reasonably expected to average less than 30 hours of service per week during the initial measurement period is a part-time employee who can also be placed into the initial measurement period.

Look-Back Measurement Method: Change in Employment Status During the Initial Measurement Period

Where a part-time, variable hour, or seasonal employee is converted to a full-time position during the initial measurement period, the original limited non-assessment period (of the initial measurement period and initial administrative period that may extend up to 13 months, plus a partial month for a mid-month hire) terminates, and a new limited non-assessment period takes its place.

In this change in employment status situation, the employer has until the first day of the fourth full calendar month following the change in employment status (or, if sooner, the first day of the stability period in which the employee is treated as full-time) to offer medical coverage to avoid potential ACA employer mandate pay or play penalties.  In other words, the employer has a new limited non-assessment period of three full calendar months from the date of the change in employment status (or, if sooner, the first day of the stability period in which the employee is treated as full-time) in place of the initial measurement period.

This change in employment status rule applies only where the employee is moved to a position for which he or she would have been considered a new full-time employee upon initial hire.

The change in employment status rule does not apply where:

  • The employee simply works more than 130 hours of service in one or more calendar month during the initial measurement period; or
  • The employee is not in an initial measurement period.

In either of those situations, the results of the full initial measurement period or standard measurement period respectively will govern the employee’s full-time status for the associated stability period.  For more details, see our previous ABD Compliance FAST: Measuring Hours of Coverage.

Example:

  • Employee is hired in January 2019 as a new variable hour employee and placed into a 12-month initial measurement period.
  • On March 15, 2019, the employer moves the variable hour employee to a new full-time position for which the employer would have classified the employee as a new full-time employee upon hire (i.e., no initial measurement period would have been permitted if hired into the position).

Result:

  • The employer must offer medical coverage that is effective no later than July 1, 2019, which is the first day of the fourth full calendar month following the change in status, to avoid potential ACA employer mandate pay or play penalties.
  • Ideally, the employer would offer the coverage by mid-June to provide the employee with an effective opportunity to enroll in the coverage (as required by the ACA) effective as of July 1.

Summary: New variable, seasonal, or part-time employees who experience a change in employment status to full-time work during the initial measurement period will need to be offered coverage by the first day of the fourth full calendar month following the change (or, if sooner, the first day of the stability period in which the employee is treated as full-time) to avoid potential ACA employer mandate pay or play penalties. 

Regulations

Treas. Reg. §54.4980H-3(d)(3)(vii)

https://www.federalregister.gov/documents/2014/02/12/2014-03082/shared-responsibility-for-employers-regarding-health-coverage

(vii) Change in employment status during the initial measurement period—(A) In general. If a new variable hour employee, new seasonal employee, or new part-time employee experiences a change in employment status before the end of the initial measurement period such that, if the employee had begun employment in the new position or status, the employee would have reasonably been expected to be employed on average at least 30 hours of service per week (or, if applicable, would not have been a seasonal employee and would have been expected to be employed on average at least 30 hours of service per week), the rules set forth in the remainder of this paragraph (d)(3)(vii) apply. With respect to an employee described in this paragraph (d)(3)(vii) and subject to the rules in the next sentence, the employer will not be subject to an assessable payment under section 4980H for the period before the first day of the fourth full calendar month following the change in employment status (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)). An employer will not be subject to an assessable payment under section 4980H(a) with respect to an employee described in this paragraph (d)(3)(vii) for any calendar month during the period described in the prior sentence if, for the calendar month, the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage by the employer no later than the end of the period described in the prior sentence if the employee is still employed on that date; if the offer of coverage for which the employee is otherwise eligible during the period described in the prior sentence, and which the employee is actually offered by the first day after the end of that period if still employed, provides minimum value, the employer also will not be subject to an assessable payment under section 4980H(b) with respect to that employee during that period. For purposes of this paragraph (d)(3)(vii), an employee is otherwise eligible to be offered coverage under a group health plan for a calendar month if, pursuant to the terms of the plan as in effect for that calendar month, the employee meets all conditions to be offered coverage under the plan for that calendar month, other than the completion of a waiting period, within the meaning of § 54.9801-2.

 

IRS Forms 1094-C and 1095-C Instructions:

https://www.irs.gov/instructions/i109495c

 

Limited Non-Assessment Period.

A Limited Non-Assessment Period generally refers to a period during which an ALE Member will not be subject to an assessable payment under section 4980H(a), and in certain cases section 4980H(b), for a full-time employee, regardless of whether that employee is offered health coverage during that period.

The first five periods described below are Limited Non-Assessment Periods with respect to sections 4980H(a) and 4980H(b) only if the employee is offered health coverage by the first day of the first month following the end of the period. Also, the first five periods described below are Limited Non-Assessment Periods for section 4980H(b) only if the health coverage that is offered at the end of the period provides minimum value. For more information on Limited Non-Assessment Periods and the application of section 4980H, see Regulations section 54.4980H-1(a)(26).

  • First year as ALE period. January through March of the first calendar year in which an employer is an ALE, but only for an employee who was not offered health coverage by the employer at any point during the prior calendar year.
  • Waiting period under the monthly measurement method. If an ALE Member is using the monthly measurement method to determine whether an employee is a full-time employee, the period beginning with the first full calendar month in which the employee is first otherwise (but for completion of the waiting period) eligible for an offer of health coverage and ending no later than two full calendar months after the end of that first calendar month.
  • Waiting period under the look-back measurement method. If an ALE Member is using the look-back measurement method to determine whether an employee is a full-time employee and the employee is reasonably expected to be a full-time employee at his or her start date, the period beginning on the employee’s start date and ending not later than the end of the employee’s third full calendar month of employment.
  • Initial measurement period and associated administrative period under the look-back measurement method. If an ALE Member is using the look-back measurement method to determine whether a new employee is a full-time employee, and the employee is a variable hour employee, seasonal employee or part-time employee, the initial measurement period for that employee and the administrative period immediately following the end of that initial measurement period.
  • Period following change in status that occurs during initial measurement period under the look-back measurement method. If an ALE Member is using the look-back measurement method to determine whether a new employee is a full-time employee, and, as of the employee’s start date, the employee is a variable hour employee, seasonal employee, or part-time employee, but, during the initial measurement period, the employee has a change in employment status such that, if the employee had begun employment in the new position or status, the employee would have reasonably been expected to be a full-time employee, the period beginning on the date of the employee’s change in employment status and ending not later than the end of the third full calendar month following the change in employment status. If the employee is a full-time employee based on the initial measurement period and the associated stability period starts sooner than the end of the third full calendar month following the change in employment status, this Limited Non-Assessment Period ends on the day before the first day of that associated stability period.
  • First calendar month of employment. If the employee’s first day of employment is a day other than the first day of the calendar month, then the employee’s first calendar month of employment is a Limited Non-Assessment Period.

 

ABD 2019 ACA Employer Mandate Pay or Play and ACA Reporting Guide

 

employer mandate, pay or play

look back measurement method

 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).

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