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.
So we know it’s important to identify which employees are full-time (and which are not), and we know we can use a measurement period of up to 12 months to collect the data we need to make the determination about full-time status. The next question then is what that means going forward. How long do the determinations we make during the measurement period last? That’s where the stability period comes in.
Stability Period Related to Measurement Period. Each measurement period (whether an initial measurement period or a standard measurement period) will have an associated stability period. If an employer determines that an employee did not work full-time during a measurement period, the employer is permitted to treat the employee as a part-time employee during the following stability period. Similarly, employees determined to be full-time during the measurement period are treated as full-time during the following stability period.
Actual Facts Don't Change the Current Period. The key is that an employee’s status during the stability period remains the same, regardless of how many hours the employee actually works during the stability period. For example, if an employee is determined to be part-time during a measurement period, the employee is deemed to be a part-time employee during the associated stability period, even if the employee is actually working full time during the stability period. Of course, the employee’s increase in hours may affect the employee’s status for the next stability period, but it does not change the employee’s status for the current stability period.
Defining the Stability Period. As with the measurement periods, there are some rules for defining the stability period. The stability period must be at least six months long and must be no shorter than the related measurement period. (The measurement period may be shorter than the stability period, but not the other way around.) Also, an initial stability period must be the same length as the standard stability period used for ongoing employees. A stability period generally will begin when the associated measurement period ends.
Next - Part 4: Administrative Periods
Part 1: The Problem
Part 2: Measurement Periods