Employer Mandate

Under Internal Revenue Code section 4980H, an Applicable Large Employer may be subject to a penalty if it does not offer its full-time employees, and their dependents, minimum essential coverage that is affordable and provides minimum value.

Methods for Determining Full-Time Status

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Regulations for the Employer Mandate provide two methods for tracking employees’ hours of service and determining their full-time status – the monthly measurement method and the look-back measurement method.

Monthly Measurement Method

Under the monthly measurement method, the employer determines each employee’s status by counting the employee’s hours of service at the end of each calendar month.  While this method is administratively straightforward, the disadvantage is that an employer cannot determine in advance whether an employee is full-time and, therefore, manage its penalty exposure.

For example, if an employer has employees whose hours vary month-to-month, the employer would not know whether any of those employees averaged at least 30 hours per week until the end of the calendar month.  Those employees averaging 30 hours per week, who were not offered minimum essential coverage for that calendar month, could trigger a penalty if any purchased subsidized coverage through the Exchange.

Look-back Measurement Method

The look-back measurement method provides employers a way to prospectively manage their penalty exposure.  Under the look-back method, an employer identifies its full-time employees by looking back over a specified measurement period of up to 12 months and counting the hours of service to determine if an employee averaged at least 30 hours of service per week.  Based on the determination at the end of the measurement period, the employee’s status is defined for a separate stability period of up to 12 months that follows the measurement period.

The look-back measurement method can be particularly useful for employers with a large variable hour workforce since these employees may average 30 hours or more per week only during certain times of the year but average less than 30 hours per week the remainder of the year.

May Use a Combination of Methods

In general, employers are required to use one of these two methods for all of its employees.  However, employers may use a combination of these methods for the following categories of employees:

  • Salaried and hourly;
  • Collectively bargained and non-collectively bargained;
  • Groups covered by separate collective bargaining agreements; and
  • Employees whose primary places of employment are in different states.

For example, employers may use the monthly measurement method for all salaried employees and the look-back measurement method for all hourly employees.  But employers cannot use the monthly method for all hourly employees working a regularly set schedule while using the look-back method for hourly employees with variable hour work schedules.

For a side-by-side comparison of the two methods, see our “Look-Back Measurement Method vs. Monthly Measurement Method” chart, which is available below.  More detail on both methods is also available in our June 2014 series of Briefings that are also linked below.

 

Additional Information
Look-Back Measurement Method Versus Monthly Measurement Method
This document details the differences between the look-back measurement method and the monthly measurement method.
Health Care Reform: IRC Section 4980H Determining Full-Time Status Part I – Monthly Measurement Method
This Briefing describes the monthly measurement method for tracking employees and determining their full-time status under the Employer Mandate.
Health Care Reform: IRC Section 4980H Determining Full-Time Status Part II – Look-Back Measurement Method
This Briefing outlines the rules governing ongoing employees under the look-back measurement method.
Health Care Reform: IRC Section 4980H Determining Full-Time Status Part III – Look-Back Measurement Method
This Briefing outlines the rules governing new employees under the look-back measurement method.
Health Care Reform: IRC Section 4980H Determining Full-Time Status Part IV – Look-Back Measurement Method
This Briefing describes additional rules governing new employees under the look-back measurement method.
Health Care Reform: IRC Section 4980H Determining Full-Time Status Part V – Rehire Rules and Breaks-in-Service
This Briefing describes the rules governing rehires and breaks-in-service under the monthly measurement and look-back measurement methods.
Health Care Reform: IRC Section 4980H Determining Full-Time Status Part VI – Change in Measurement Methods
This Briefing describes the rules governing changes in employment status that cause an employee to transition from one measurement method to another measurement method.