Understanding the ACA Lookback Measurement Method for Determining Full-Time Employees

The look-back measurement method is one-way business owners can limit ACA compliance-related paperwork and reporting. It also helps reduce the risk of inaccurate data submission to the IRS and corresponding penalty notices.

This method can be especially helpful for businesses with employees that have variable hours or schedules. But how does it work?

How it Works

Counting the right number of full-time employees is crucial for ACA compliance. Miscounting can lead to inaccurate annual information filings with the IRS and, ultimately, penalty assessments from the agency. The ACA provides an optional, safe harbor look-back measurement method that employers may use to determine which employees are eligible for coverage.

The look-back method uses a standard measurement period of at least three and no more than 12 consecutive months. The employer looks back at each ongoing employee’s service hours for this period to see if they averaged 30 or more weekly service hours. Employees who work an average of 30 or more weekly hours are deemed full-time, and the employer must offer them health coverage in the following stability period.

New hires are measured in an initial measurement period. The employer considers whether the new hire will likely be a full-time employee by considering whether the job requires regular, predictable hours. Tenured employees’ hours are measured each year in a standard measurement period.

Some employees’ hours are harder to track, including adjunct faculty members, commissioned sales reps and airline workers. This is one reason the ACA’s look-back eligibility testing methodology is beneficial. The testing period is shorter, making it easier to keep accurate records and assess if an employer offers enough service hours.

Initial Measurement Period

A look-back measurement period is a testing period that looks back over the previous 12 months to determine whether an employee was reasonably expected to work 30 or more hours per week. For employees who pass this test, the employer is obligated to provide them access to health coverage during a corresponding stability period. The stability period’s length must match the testing period’s duration.

When minimizing ACA penalty risk, applying the best-suited measurement method is crucial. For example, a workforce composed primarily of variable-hour employees with fluctuating weekly hours will likely find the look-back measurement method best fits their needs.

Using the look-back method, new hires not previously considered full-time will be placed into an initial measurement period upon hire to determine their status. This period is usually 11 or 12 months long. Once this period ends, the standard measurement period begins for these employees.

Once a new hire has been measured and is determined to be full-time, they will move into the standard (continuous) measurement period with the rest of the workforce. This will help keep the measurement and stability periods consistent, simplifying compliance. Using a single, integrated platform, it allows users to manage the measurement, stability, and administrative periods for new hires and ongoing employees.

Standard Measurement Period

If an employer opts to use the standard measurement method, the testing period is a fixed number of months, which may be between three and 12 months. Then, the average monthly hours worked for the entire testing period must be at least 130 hours if the employee is to qualify as full-time.

Once an employee reaches the threshold of being full-time, they must be offered coverage during a stability period that is a portion of the next year, or plan year, that follows the end of their testing period. The stability period cannot be less than six months and generally matches the length of the testing period, so if the initial test period were 12 months, the stability period would also be 12 months.

Employers must keep accurate records of service hours for each employee throughout the year and submit this information to the IRS as part of their annual reporting requirement. For employers that have employees with fluctuating hours of service, like commissioned sales reps or airline workers, this can be a tedious and frustrating process. Fortunately, it can automate this process and make it much easier.

Stability Period

If an employee’s hours aren’t consistent, or if they don’t work, on average, at least 130 hours per month, the employer will need to offer them coverage during a stability period. The length of this period can vary, but it cannot be shorter than the standard or initial measurement period and must be at least six months long.

For example, let’s say an employee was a full-time employee during their first measurement period. However, the following stability period saw their hours decline to below 130. The employer would then need to offer them coverage for the remainder of the stability period. The employer wouldn’t be liable for any ACA penalties if this occurs.

The same rules apply to seasonal employees, variable-hour employees and non-union hourly workers who may vary between working more than 30 and less than 30 hours a week on average. Suppose these types of employees transfer during an initial measurement period to a second position where they are reasonably expected to be full-time. In that case, their status will continue to be determined by the results from the first measurement period (including hours of service on leave).

It tracks all of an employee’s service hours to ensure accurate reporting for these employees.