Under the Affordable Care Act (ACA), applicable large employers (ALEs) - those with 50 or more full-time equivalent employees - are required to offer affordable, minimum-value coverage to all full-time employees and their dependent children. To determine which employees are considered full-time, the ACA provides two permissible measurement methods: the monthly measurement method and the look-back measurement method. Under either method, full-time is defined as 30 hours of service per week or 130 hours per month.

The chosen measurement method must be used consistently for all employees, or at least all hourly employees. It is not possible to use the monthly measurement method for full-time employees and the look-back measurement method for non-full-time employees. The monthly method requires a monthly determination of an employee's status as full-time, while the look-back method allows ALEs to average employees' hours over a longer period of time, which can be advantageous for employers with a significant number of variable hour or seasonal employees.

This summary provides a focused overview of the look-back measurement method and its key tenets.

Look-Back Measurement Method Cycle

There are three stages of the look-back measurement method:

Measurement Period - This is the period during which an employee’s hours are averaged to determine full-time or part-time status. The measurement period can be 3-12 months long; most employers use a 12-month measurement period that aligns with their plan year.

Administrative Period - This is the period between the end of the measurement period and the corresponding stability period during which the ALE determines which employees measured as full-time. The administrative period can be up to 90 days; most employers utilize a 60-day or 2-month administrative period.

Stability Period - This is the period during which coverage must be offered (or not) based on the employee's average hours during the previous measurement. The stability period must be of equal or greater length than the measurement period, but never shorter than 6 months.

The three stages form an ongoing cycle. For illustrative purposes, below is a two-year timeline for an employer that has a calendar year plan and utilizes a 12-month measurement period from November through October, a 2-month administrative period from November through December, and 12-month stability period from January through December.

Ongoing Employees

For ongoing employees, hours are averaged over the standard measurement period (SMP), and then their status as full-time or part-time is locked in for the entire corresponding stability period. If an ongoing employee who measured full-time in the previous SMP experiences a reduction in hours during the stability period, coverage must usually continue at least until that stability period ends.

Stability Period Exception

The general rule is that an employee who averaged full-time hours in the previous SMP must be treated as full-time for the entire corresponding stability period, despite any reduction in hours or leave of absence, unless employment is terminated. However, a small exception applies for a full-time employee who has been continuously offered coverage since hire; in that case, coverage can be dropped starting the first day of the fourth month following a change in status to part-time during a stability period so long as the employee has less than 130 hours of service per month for each of the three months following the change in status.

On the other hand, if an employee who measured part-time in the previous SMP experiences an increase in hours during the corresponding stability period, the employer is not obligated to make an offer of coverage to that employee until the next stability period. However, many employers choose to offer coverage sooner in these circumstances (e.g., after the plan's normal waiting period).

New Hires

New hires are treated differently depending on whether they are expected to work full-time hours upon hire. Note that while many employers may have their own definitions of full-time, part-time, variable hour, or seasonal employees, these are not relevant for ACA purposes - the ACA has its own definitions for these terms, and that is what is relevant for purposes of complying with the ACA,s offer of coverage requirements.

Full-Time New Hires

Full-time new hires must be offered coverage after the plan's normal waiting period (e.g., 1st of the month following 60 days), and hours are measured monthly until they complete a full SMP.

Non-Full-Time New Hires

New hires who are not expected to work full-time hours or for whom it is unknown (including part-time, variable hour, and seasonal employees) may be subjected to an initial measurement period (IMP) beginning the first day of the month following the date of hire and lasting between 3 - 12 months. The IMP is generally required to match the length of the employer's SMP.

During the IMP, there is no obligation to offer coverage to the employee, regardless of how many hours they work. If the new hire measures as full-time during their IMP, then they are entitled to an offer of coverage after the administrative period for a stability period of the same length as the standard stability period used for ongoing employees. If the employee does not measure as full-time during their IMP, then there is no obligation to offer coverage at the end of the IMP.

Either way, a non-full-time new hire will also be measured under the next SMP following their date of hire (which will overlap with the IMP), thus transitioning into the standard cycle and becoming an “ongoing employee”.

Other Resources

• A Guide to §4980H Look Back Measurement Method

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