How to Determine Hours Worked for New Variable-Hour Employees Under Health Care Reform

April 22, 2014

Beginning January 1, 2015, under the shared responsibility provisions of the Patient Protection and Affordable Care Act (PPACA), all employees with an average of 30 or more hours of service per week or 130 hours of service per month must be eligible for affordable health coverage with minimum value, or the employer may be subject to a penalty.
If an employer cannot determine at the hire date whether an employee will have on average at least 30 hours of service per week, the employee would be considered a new variable-hour employee. Under safe harbor methods, employers may designate certain periods of time to assess and determine if new variable-hour employees are eligible for health coverage.

Step 1: Determine the Initial Measurement Period

Employers have the option to use a “look-back” period, also known as an initial measurement period, to determine if an employee has an average of at least 30 hours of service per week. An initial measurement period can be between three and 12 months. It can begin on or after the employee’s hire date.

For example, Jane begins employment on February 7, 2013. Her employer uses an initial measurement period of six months. Her employer would review Jane’s hours of service between February 7, 2013, and August 6, 2013, to determine if Jane has at least an average of 30 hours of service per week. In another example, Joe begins employment on November 10, 2013. His employer has an initial measurement period of three months beginning the first of the month following the hire date. Joe’s employer would review his hours of service from December 1, 2013, through February 28, 2014.

Step 2: Determine the Administrative Period

An employer may also add an administrative period of up to 90 days to the initial measurement period. An administrative period is the time an employer may use to determine eligibility for, offer and implement health care coverage. The initial measurement period and the administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date. The administrative period may be added to the end of the initial measurement period or may be split before and after the initial measurement period.

For example, Bob begins employment on June 23, 2013. His employer has a six-month initial measurement period that begins the first of the month following the hire date and a 90-day administrative period. The time between the hire date of June 23 and June 30 (seven days) is part of the administrative period. The initial measurement period begins July 1, 2013, and ends on December 31, 2013 (six months). January 1, 2014, through March 4, 2014 (83 days) is the second part of the administrative period. This time is used to determine if Bob has met the 30-hours-of-service requirement, to communicate eligibility and to offer him coverage, and if he chooses coverage, to process his enrollment.

Step 3: Determine the Stability Period

Once an employee is determined to be full time, he or she must be eligible for enrollment in health coverage during a stability period. The stability period is a designated period of time in which the employer must offer health coverage to full-time employees or face penalties. This period of time may be no less than six months and no less than the corresponding measurement period. If an employer has a three-month initial measurement period, the stability period must be at least six months. If an employer has a 12-month initial measurement period, the stability period must be at least 12 months.

In Step 1 above, Jane began employment on February 7, 2013. Her employer used an initial measurement period of six months. Jane’s employer reviewed her hours of service between February 7, 2013, and August 6 2013 (6 months) and determined that Jane had at least an average of 30 hours of service per week during that time. Jane’s employer has an administrative period that runs from the end of the initial measurement period until the end of the second full calendar month following the initial measurement period. In this scenario, the administrative period is from August 8, 2013, through October 31, 2013 (84 days). Jane should be offered health coverage during the stability period. Jane’s employer has a stability period of one year beginning on November 1, 2013. In this case, the stability period is at least six months and is greater than the initial measurement period. Jane is eligible for health coverage from November 1, 2013, until October 31, 2014.

Step 4: Determine Full-Time Status Based on Hours of Service

Once the initial measurement, administrative and stability periods are established, an employer can begin to assess full-time status of new variable-hour employees.
Example 1
Employer A has:

A six-month initial measurement period beginning on an employee’s hire date.
A one-month administrative period beginning at the end of the initial measurement period.
A stability period of six months beginning January 1 and July 1 each year.

Employer A hired Fred on September 15, 2012, and was uncertain whether Fred would have at least 30 hours of service per week. During the administrative period beginning March 16, 2013, Employer A reviewed Fred’s hours of service from September 15, 2012, through March 15, 2013 (6 months) and determined that Fred worked the following hours each month:
September 15, 2012 – October 14, 2012: 80 hours
October 15, 2012 – November 14, 2012: 150 hours
November 15, 2012 – December 14, 2012: 180 hours
December 15, 2012 – January 14, 2013: 135 hours
January 15, 2013 – February 14, 2013: 140 hours
February 15, 2013 – March 14, 2013: 95 hours
Fred had on average 130 hours per month (i.e., 80+150+180+135+140+95/6 months=130) or 30 hours per week (i.e., 80+150+180+135+140+95/26 weeks). Fred would be full time for purposes of health care eligibility because he averaged 130 hours per month or 30 hours per week during the initial measurement period. During the administrative period from March 16, 2013, through April 15, 2013 (one month), Employer A would provide Fred with enrollment forms, and if Fred elected coverage, his insurance would begin July 1, 2013. The stability period is six months, so Fred is eligible for coverage from July 1, 2013, through December 31, 2013, regardless of any changes to his schedule during that time.

Example 2

Employer B has:

A one-year initial measurement period beginning on an employee’s hire date.
An administrative period running from the end of the initial measurement period to the end of the calendar month following the initial measurement period.
A stability period of one year beginning January 1.
Employer B hired Sue on June 2, 2012, and was uncertain whether Sue would work at least 30 hours of service per week. Employer B reviewed Sue’s hours of service in the initial measurement period from June 2, 2012, through May 1, 2013 (one year). It was determined that Sue had an average of at least 30 hours of service per week during that period. During the administrative period from May 2, 2013, through May 31, 2013 (30 days), Employer B provided Sue with health enrollment forms. Sue elected coverage and was enrolled during a stability period beginning July 1, 2013, through June 30, 2014 (one year). Sue did not have to wait until January 1, 2014, to receive health coverage because the combined initial measurement period and administrative period cannot exceed beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date. In Sue’s case, the last day of the first calendar month beginning on or after her one-year anniversary date is June 30, 2013. Sue must be enrolled in coverage by July 1, 2013.

Thanks to SHRM – Society of Human Resource Management for this article

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