This month I have teamed up with my colleague Kara Gansmann to help provide some insight on some hot topics for employers with regards to the Affordable Care Act (ACA). In our last post she shared a basic primer on the ACA. This time she is offering up insights on look-back periods and variable-hour employees.
 
To comply with the “pay or play” provisions of the Affordable Care Act, certain large employers must determine which employees are full-time employees. If an employee works on average 30 hours or more each week, the determination is easy, and the employee’s eligibility for health care benefits can be determined by the employer on a month-to-month basis.
 
If an employer cannot in good faith determine whether the employee is expected to average 30 hours per week, then that employee is a variable-hour employee. Whether a variable-hour employee is eligible for health care benefits requires a retrospective calculation of the employee’s hours in an approach called the “look-back measurement method.”
 
The look-back measurement method is comprised of two required periods of time: a measurement period and a stability period, which are both set by the employer. The measurement period is between three and 12 consecutive calendar months. If an employee worked on average at least 30 hours of service per week during that measurement period, then that employee is considered a full-time employee who is eligible for health care benefits. The stability period that follows lasts at least six consecutive calendar months and cannot be shorter than the prior measurement period. During the stability period, those eligible full-time variable-hour employees will receive health care benefits for the duration of the stability period as long at the employee remains employed and even if the employee’s hours in that stability period fall below 30 hours each week.
 
For newly hired employees, if, at the time of hiring, it is uncertain whether an employee will be a full-time employee, an employer may define a future measurement period to determine whether a newly hired employee may be eligible for health care benefits during an associated stability period. An employer is not penalized for failing to offer health care benefits to newly hired variable-hour employees during their initial measurement periods.
 
General steps to apply the look-back method:

• Select a measurement period of three to 12 months and a stability period of at least six months or the length of the measurement period if greater.
• If an employee averages 30 or more hours per week during the measurement period, the employee must be considered full-time for the subsequent stability period; if not, the employee will be considered not full-time for the stability period.
• Employers may include an optional administrative period of up to 90 days between measurement and stability periods to conduct enrollment for eligible employees.
• Select an initial measurement period for newly hired variable-hour employees and a start date like the date of hire.

Compliance with the act begins with a firm understanding of the requirements for variable-hour employees. Balancing the financial and operational exposures for staffing against the new rules and penalties, while complex and potentially costly, is essential. Finally, to ease expectations and communications with employees, update and consistently enforce employment manuals and polices.
 
This content has been prepared for general information purposes only. This information is not intended to provide specific legal advice. Legal advice is dependent upon the specific circumstances of each situation. The information provided cannot replace the advice of competent legal counsel by a licensed attorney in your state.
 
Benton L. Toups is a partner at Cranfill Sumner & Hartzog LLP and serves as vice-chair of the Employment Law Practice Group. His practice concentrates on representing businesses in all aspects of labor and employment law. A firm believer in the adage that “an ounce of prevention is worth a pound of cure,” Toups counsels employers on day-to-day issues and assists them in developing and implementing policies to avoid employment litigation. To contact Toups, call (910) 777-6011 or email him at [email protected].