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Health Care Reform and Full-Time Employees - Part 2: Measurement Periods
10/31/2012

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

We know a critical issue in looking at the play-or-pay penalties is determining which employees are full-time and which are not. An initial step in that process is identifying the period to be used for making that determination.

Looking Back vs. Looking Forward. For employees who work varying schedules and hours, it can be difficult to predict whether or when those employees will average 30 or more hours per week. So Notice 2012-58 allows an employer to look back over a defined period to make that determination. This look-back period is referred to as a “measurement period.” As the name suggests, it is the period over which the employer will measure an employee’s hours worked and determine whether the employee was above or below the 30-hour threshold.

Two Types. There are two types of measurement periods: an “initial measurement period” and a “standard measurement period.” They are conceptually similar, but operate differently and serve slightly different functions.

Initial Measurement Period. The initial measurement period applies to newly hired variable-hour and seasonal employees. Although the length of the initial measurement period must be the same for all similarly situated employees, the period itself may begin and end on different dates for different employees, depending on the date of hire.

For example, if the initial measurement period is 12 months beginning on the date of hire, an employee hired on August 3, 2014 will have an initial measurement period from August 3, 2014 through August 2, 2015, but an employee hired on November 29, 2014 will have an initial measurement period from November 29, 2014 through November 28, 2015.

The purpose of an initial measurement period is to determine whether a newly hired variable-hour or seasonal employee has worked enough to be above the 30-hour threshold and so must be offered coverage in order to avoid a penalty. At the end of the initial measurement period, the employer calculates the average hours worked over the period.

As a practical matter, the initial measurement period works a little like a waiting period. Variable-hour and seasonal employees do not have to be offered coverage during the initial measurement period, and the employer will not be penalized for delaying the coverage decision until after the end of the initial measurement period.

Standard Measurement Period. The standard measurement period applies to ongoing employees. It is a uniform period for all similarly situated employees, meaning it begins and ends on the same dates for everyone. For example, the standard measurement period might be defined as a 12-month period beginning on November 1 each year.

Like the initial measurement period, the purpose of the standard measurement period is to determine periodically whether an employee continues to be above or below the 30-hour threshold. If an employee has been provided health coverage but then falls below the 30-hour average for a standard measurement period, coverage may be terminated prospectively. Conversely, if an employee has not been provided health coverage but then rises above the 30-hour average for a standard measurement period, coverage must be offered prospectively to avoid a penalty.

As a practical matter, the standard measurement period is likely to be a lead-in to the annual open-enrollment period. The employer will look at the standard measurement period to determine which employees must be offered the opportunity to enroll during the open-enrollment period each year.

Rules for Measurement Period Length. Employers have flexibility in setting the length of a measurement period, but there are some limits. A period cannot be shorter than 3 months or longer than 12 months. The initial measurement period and the standard measurement period do not have to be the same length (although in many cases it may be convenient to keep them the same). And different measurement periods can be used for different permitted classifications of employees (e.g., union vs. non-union or salaried vs. hourly).

Next - Part 3: Stability Periods

 


Authors
Don Berner Image
Don Berner, the Labor Law, OSHA, & Immigration Law Guy
Boyd Byers Image
Boyd Byers, the General Employment Law Guy
Jason Lacey Image
Jason Lacey, the Employee Benefits Guy
Additional Sources
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