The IRS has outlined two ACA measurement methods that can be used in determining employee status for ACA purposes. These are the Monthly Measurement Method and Look-Back Measurement Method.
ACA Employer Mandate
It’s important that Applicable Large Employers (ALEs) ensure that they meet all of the requirements outlined by the ACA Employer Mandate.
This means that ALEs must ensure that they are offering Minimum Essential Coverage (MEC) that meets Minimum Value (MV) to at least 95% of their full-time employees (and any applicable dependents). The coverage must be affordable using the IRS affordability methods. Learn more about these ACA terms here.
But how should employers determine full-time status for employees?
Types of ACA Measurement Methods:
The IRS has outlined two different ACA measurement methods for determining which employees are full-time and require an offer of coverage. These are the Monthly Measurement Method and Look-Back Measurement Method.
Monthly Measurement Method
This is the default ACA measurement method for determining employee status. It requires the employer to use the employee’s monthly hours for the month. If the employee averaged 30 hours per week, or more than 130 hours in a month, then they should have been offered coverage for that entire month.
This method requires a lot of maintenance for tracking employees’ service hours, and can be seen as impractical for some.
Look-Back Measurement Method
This is an alternate ACA measurement method for determining employee status. It is typically comprised of three different time frames: the measurement period, the administrative period, and the stability period.
The measurement period is the time frame in which the employer can measure the employees’ service hours over a period of time, typically 12 months (or as little as 3 months).
The administrative period is the time frame directly following the measurement period, and can also be from 3 months to 12 months long. Its used to further gather data and paperwork to ensure that an offer is made within the appropriate time frame. This is optional, but is helpful in ensuring accurate service hours for the employees.
The stability period happens after the (optional) administrative period, and should align with the beginning of the offered coverage effective date. It indicates the period in which employees are defined and established as full-time or not full-time.
Choosing an ACA Measurement Method
When choosing an ACA measurement method, your team should assess your workforce.
- If your workforce is primarily made up of variable-hour employees, then it may be best to use the Look-Back Measurement Method.
- If your workforce is primarily made up of full-time employees, then it may be best to use the Monthly Measurement Method.
It’s essential for employers to correctly determine their employees’ worker status. Employers should become familiar with the ACA measurement methods for determining employee full-time status. This will help to ensure that they meet all of the requirements outlined in the ACA Employer Mandate with plenty of time before the deadline.
Determining when full-time employee should be offered health coverage can also be a daunting task. ALEs who delay offering full-time employees’ coverage may be protected using one of the limited non-assessment periods provided by the IRS.
Learn more about Form 1095-C and become a master at ACA reporting using our downloadable PDF Guide below.
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.