An employer may simply look at its population on a current, month by month basis if it wishes to. However, to avoid the complications that may arise if an employee alternates between working more and less than 30 hours, or to simply reduce calculation frequency, IRS Notice 2012-58 gives an employer the option of using longer calculation periods to get a smoother, more predictable result if it prefers to do that.
If the employer wants to use a smoothing technique, different processes apply to existing and new employees.
The calculation option for existing (“ongoing”) employees
Instead of tracking time currently, an employer may look at how many hours the employee averaged during a lookback period called a “standard measurement period.” Once the determination is made whether the employee worked full-time during the standard measurement period that determination will apply throughout the related stability period regardless how many hours the employee actually works. (Note that the employer will still have to track the employee’s hours during the stability period, as that information will be needed to make the determination for the next standard measurement period.) To use this option:
• The employer must choose a “standard measurement period” of three to 12 months. The standard measurement period is the “lookback” period that is used to track the employee’s hours and determine how many hours he worked, on average, during the standard measurement period
• The employer must choose a start date for the standard measurement period. It can be Jan. 1, the first day of the benefit period, a date near the start of open enrollment, or any other date the employer chooses
• The employer must choose a stability period. The stability period is the period for which the employee is considered “full-time” or not full-time, based on the average hours worked during the standard measurement period. The stability period must be:
- At least as long as the standard measurement period
- Not more than 12 months
- No longer than the standard measurement period if the employee is determined to not be full-time
- At least six months if the employee is determined to be full-time
• Employers may use different standard measurement and stability periods and period start dates for these classes of employees:
- Collectively bargained and non-collectively bargained
- Hourly and salaried
- Employees of different entities
- Employees located in different states
Example: ABC Corp. chooses to use a 6 month standard measurement period and a 6 month stability period. ABC’s first standard measurement period will begin on July 1, 2013 and end on Dec. 31, 2013 and its first stability period will run from Jan. 1, 2014 through June 30, 2014.
Bill works:
29 hours per week in July 2013
30 hours per week in Aug. 2013
28 hours per week in Sept. 2013
28 hours per week in Oct. 2013
26 hours per week in Nov. 2013
33 hours per week in Dec. 2013
35 hours per week in Jan. 2014
32 hours per week in Feb. 2014
30 hours per week in March 2014
33 hours per week in April 2014
31 hours per week in May 2014
28 hours per week in June 2014
Bill’s average is 29 hours per week during the July – Dec. 2013 standard measurement period. He will not be considered a full-time employee for purposes of the play or pay penalties during the stability period (Jan. – June 2014) even though he is regularly working more than 30 hours per week during that time.
When Jan. – June 2014 becomes the measurement period, the 35 + 32 + 30 + 33 + 31 + 28 hours worked will be averaged, and because Bill is full-time (31.5 hours per week) during that measurement period, he will be considered full-time for play or pay purposes from July – Dec. 2014 even if his hours drop below 30/week during that period, as long as he remains employed by ABC.
An employee is considered “ongoing” once he has completed a full standard measurement period.
Note: Employers will want to weigh the administrative burden of using this method with the potential to exclude certain employees for purposes of the penalty. Employers who have employees work fewer hours during certain times of the year, such as schools, may find that using a 12-month standard measurement period will be advantageous.
Handling new employees who are expected to work full-time
To avoid penalties, a new employee who is reasonably expected to work 30 or more hours per week must be offered coverage following satisfaction of the eligibility waiting period. Under PPACA, the waiting period generally cannot be more than 90 days. No play or pay penalty will be owed during the waiting period if the employee is offered coverage that would be effective on or before the end of the permissible waiting period.
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