Refresher - ACA Break-in-Service Rules
Refresher - ACA Break-in-Service Rules
10/20/2026
When an employee leaves and later returns (after a termination, rehire, or leave of absence), the employer must decide whether to treat them as a new hire or a continuing employee. That decision determines when, or whether, medical coverage must be offered under the ACA. Errors can create coverage gaps and trigger §4980H penalties.
The Basics
- A break in service is a period with no hours of service (the employee is not being paid)
- It applies whether the employee actually terminated or was on an unpaid leave
- The rules apply to medical coverage only, though many employers apply them across all benefits for consistency
General Rule
- Less than 13 weeks away (26 weeks for schools): treat as a continuing employee
- 13+ weeks away (26+ for schools): may treat as a new hire
Rule of Parity
An alternative test that applies to new-hire treatment only. If the break is at least 4 weeks long and longer than the time worked before the break, the employee may be treated as a new hire.
Example: An employee works 3 weeks, then quits and is rehired 6 weeks later. The 6-week break is longer than the 3 weeks worked, so the employer may treat the employee as a new hire.
Continuing Employees
Applies when the break is under 13 weeks (under 26 for schools).
- Enrolled before the break: coverage must be reinstated no later than the 1st of the month after the employee returns
- Waived coverage previously: no need to offer coverage right away; the ACA only requires an offer again at the next open enrollment
- Look-Back Method: an employee who was full-time before the break must be treated as full-time through the end of the stability period, even if hours drop
- Special unpaid leave (FMLA, USERRA, jury duty): these absences cannot reduce the employee's average hours. Either exclude the leave period or impute hours based on the normal schedule
New Hires
If the break is long enough, or meets the parity rule:
- A new waiting period or initial measurement period may be applied
- Some employers shorten or waive the waiting period for returning staff. If so, confirm the plan documents allow it
Examples: New Hire vs. Continuing Employee
| Break in Service | Situation | Outcome |
|---|---|---|
| 28 weeks (monthly method) | Employee terminated and rehired | New Hire - break is 13+ weeks (26+ for schools) |
| 5 weeks | Employee waived coverage during last enrollment | Continuing Employee - no coverage until next open enrollment |
| 4 weeks | Employee rehired part-time | Continuing Employee - no coverage required if part-time |
| 6 weeks (look-back) | Variable-hour employee who was full-time during stability period | Continuing Employee - must reinstate coverage for rest of stability period |
| 8 weeks | Employee on FMLA leave | Continuing Employee - coverage must continue or be reinstated; leave hours excluded/imputed in averages |
Bottom Line
Break-in-service rules decide whether a returning employee is treated as new or continuing, which directly affects when coverage must be offered. Apply the 13-week rule (26 for schools), understand the parity exception, and reinstate coverage on time for continuing employees to avoid costly penalties.
Amwins Brief - ACA Break In Service Rules
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