ACA Update: The Look-Back Measurement Method for Large Employers

Determining ACA employer mandate compliance is a two-step process: first, determine if you are a covered “large employer,” then, if you are, determine who you must offer insurance to in order to avoid paying any penalties.  This is because large employers are not required to offer all employees health insurance, only full-time workers.

The formula for determining large employer status, i.e. determining who are the “employers who employed at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year,” has remained relatively consistent since the publication of proposed employer mandate regulations in the spring of 2012.

The IRS, however, is still working to refine the systems whereby large employers identify full-time workers to whom they are required to offer insurance.

Technically, if an employee averages more than 30 hours per week in any given month, that employee is considered full-time for the applicable calendar month and failure to offer insurance to the employee in that month triggers a penalty.  This is at odds with a health insurance system that generally does not allow people to move in and out of coverage on a month-to-month basis.

To reconcile the insurance market with the penalties, the IRS proposed a safe harbor method of identifying full-time employees known as the “look-back measurement method.”  In the look-back measurement method, employees cycle through measurement periods, where their hours are tracked; administrative periods, where their hours are tallied; and stability periods, where their status as full-time or part-time remains established and insurance is administered accordingly.

The most recent IRS guidance, Notice 2014-49 to be published on September 29, 2014, addresses two specific situations with regard to use of the look-back measurement method:

  1. How to apply the look-back measurement method when an employee changes positions such that their measurement, administrative or stability periods change; and
  2. When employers are permitted to change measurement periods for classes of employees.

For an employee changing positions, a number of variables are considered in determining their transition to a new look-back measurement scheme, including where they are in their former position’s cycle.  Understanding the complexity of applying the newly promulgated rules, the IRS included five illustrative examples in the notice.  With regard to when an employer can change the measurement period for a whole class of employees, the IRS did not go much further than to clarify that employers are permitted to make such changes.

The IRS is asking for comments on the notice which should be submitted no later than December 29, 2014.  Although additional guidance is anticipated, the guidance provided in the notice can be relied upon until, at minimum, the end of 2016.

Upcoming Seminar to Learn More
Smith Haughey Rice & Roegge will be hosting another free ACA seminar in April, 2015 focused on the employer mandate. Should you have any questions about the ACA employer mandate, including whether you qualify as a large employer, please do not hesitate to contact Janis L. Adams, or any member of Smith Haughey Rice & Roegge’s Labor and Employment practice group.

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