Healthcare.jpgThis blog post was authored by Heather DeBlanc

The delay in the effective date of the large employer penalties, now January 1, 2015, has given employers a false sense of security.  Many employers are adopting the Look Back Measurement Method Safe Harbor in order to identify full-time employees under ACA’s new definition of “full-time” employee (30 or more hours of service per week). 

The Safe Harbor allows employers to average hours over a longer period of time (e.g., up to one year).  For those employers who do not adopt the Safe Harbor, the IRS will determine which employees are full-time on a monthly basis.

Under the Safe Harbor, an employer can track hours of an employee over the course of a year.  If an employee averages 30 or more hours per week over a measurement period (e.g. one year), that employee can be treated as full-time during the following year (i.e. stability period).  Likewise, an employee who does not meet the full-time definition during the measurement period will not be treated as full-time during the stability period.  The employer may also establish an administrative period.  Note: The establishment of periods has specific legal requirements related to timing and length that are not fully addressed in this blog

The proposed regulations provided transitional relief for employers who adopted the Look Back Safe Harbor during 2013 for purposes of coverage during 2014.  Specifically, the transition relief allowed employers to use a shorter measurement period and, for fiscal year plans that met certain requirements, they would not need to offer coverage to avoid penalties until the first day of the plan year during 2014.  Similar transition relief is not available for the 2015 coverage period. 

When should different plans start to measure employees?

  • Employers with fiscal year plans that began in July will need to start measurement periods by July 1, 2013
  • Employers with fiscal year plans that begin in October will need to start measurement periods by October 1, 2013
  • Employers with calendar year plans will need to start measurement periods by January 1, 2014.

These dates assume that the employer will not be adopting an administrative period.  If an administrative period is adopted, the measurement periods should start 30 to 60 days earlier. 

What action do employers need to take now?

There is no requirement that an employer adopts and implements the Safe Harbor before the start of the measurement period.  However, employers should assess their current workforce, determine potential exposure to penalties and start planning now for 2015.  Those employers who want to use the Safe Harbor should document their implementation in a Resolution, Policy, Procedure or other guideline.