The Affordable Care Act (ACA) requires large employers to offer employees health insurance or pay a penalty. ACA compliance is complex, with many boxes to check and hoops.
One of the most complicated aspects of ACA compliance is the lookback measurement method, which involves statistically averaging an employee’s work hours. Tango Health has invested a lot of time and resources into software, expertise, and services to help companies navigate the complexities of this measurement method.
How to Determine Full-Time Status
Whether you have a large population of variable-hour employees who work irregular shifts, or a small number of designated full-time employees, the ACA’s employer mandate requires that all organizations offer health coverage that meets minimum essential coverage (MEC) and affordability requirements. Failing to do so can result in the IRS assessing penalty payments to your organization via Letter 226J.
The best way to minimize penalty risk starts with implementing the most appropriate measurement method for your workforce. For employees with fluctuating hours of service, the ACA lookback period Measurement Method may be the best choice for determining eligibility.
When an employee is measured under the Lookback Measurement Method, their service hours are looked back to determine if, on average, they worked 30 or more hours each week and 130 or more hours each month. If they pass this test, the employer must offer them coverage for a period known as the stability period. The stability period must be at least six months and match the testing period’s length.
While the Lookback Measurement Method can be a more complicated tool for determining eligibility, it is highly effective. It allows employers to proactively offer coverage to eligible employees and accurately complete their annual information filings with the IRS.
Many employers are assessing their penalty risk as the ACA compliance deadline approaches for ALEs. This includes determining which employees are considered full-time under the ACA’s definition and offering them health coverage or facing penalties. This assessment is complicated because much of today’s workforce consists of variable-hour and seasonal workers and employees on leave or laid off due to the COVID-19 pandemic.
The lookback measurement method is an excellent solution for addressing these challenges because it allows for the ups and downs of an employee’s work hours to be statistically averaged over a period called a stability period. Typically, the stability period must be the same length as the measurement testing period and cannot exceed six months.
Suppose employees meet the ACA’s definition of full-time during the testing period. In that case, they are locked into that status for the stability period and will remain eligible to receive employer-provided healthcare even if their hour’s decrease. This helps ALEs manage their ACA compliance risk by providing consistency in eligibility.
To be able to manage their ACA compliance risk, it is crucial that an ALE determines their best measurement method and establishes the appropriate stability periods. It is also important to partner with a third party that can provide consistent and accurate support to ensure adherence to these standards, as they can change yearly.
The ACA establishes measurement and stability periods to determine whether an employee is working what the ACA considers full-time (i.e., 30 hours per week or 130 hours per month). To avoid potential IRS penalties (Letter 226J), employers must offer coverage to employees who average 30+ hours or 130+ hours during the standard measurement period. The Integrity Data ACA Compliance Solution utilizes the lookback measurement method for hourly paid employees and the monthly measurement method for salary/full-time employees.
The lookback measurement method uses statistical averaging to evaluate employees’ work history and determine their eligibility for coverage. This method works best for variable-hour employees, seasonal workers, and interns who work irregular schedules and fluctuate their weekly hours. This method allows them to be offered coverage over 12 months, known as a stability period, if they average enough hours.
The initial measurement period for new hires can be as long as 12 months, with the first month beginning the day after the employee’s date of hire or August 1st, whichever comes first. Then, during the stability period, an employee must continue to average the required hours to avoid being considered part-time. To help manage these complexities, companies using the lookback measurement method should have a dedicated team that analyzes and monitors trends in their employees’ weekly hours.
Companies going through a merger or acquisition must consider the ACA’s implications for all involved. Whether it’s an asset or stock purchase, acquiring companies must formulate an ACA strategy that includes a review of the target company’s past reporting and compliance history. This will analyze historical filings of Forms 1094-C, 1095-C, and transmittal forms for the Patient-Centered Outcomes Research Institute fee (PCORI) and medical loss ratio rebates.
The acquiring company must also understand how the target determined full-time status, including its measurement method and any resulting stability periods. For example, suppose the target company used the lookback measurement method and an employee averaged 130 hours of service during the initial measurement period. In that case, the acquiring company must offer coverage for that employee during the subsequent stability period or risk Penalty A.
Similarly, if the target company employed employees who were considered part-time and did not offer them health insurance, the acquiring company could be subject to Penalty B. Therefore, the acquiring company must analyze the target’s previous ACA reporting processes and determine how to best approach any potential ALE penalties for the year of acquisition. Working with a skilled team of ACA experts is essential for minimizing ACA penalty risk. Accord can help companies manage the complexity of the lookback measurement method through software, services, and monthly reporting and reviews.