IRS, Treasury Propose Ways to Apply ACA Look-Back Measurement Method in Certain Situations

Author: Gloria Ju

September 23, 2014

In Notice 2014-49, the Internal Revenue Service (IRS) and Treasury Department propose ways to apply the look-back measurement method for determining if an employee is a full-time employee for Affordable Care Act (ACA) purposes when the measurement period applicable to the employee changes. The Notice addresses the following two situations:

• An employee transfers positions within the same applicable large employer (ALE), and different measurement periods apply to the two positions (e.g., an employee moves from an hourly position with a 12-month measurement period to a salaried position with a six-month measurement period); and
• An ALE changes the measurement period that applies to a category of employees (e.g., an ALE changes all hourly employees from a six-month to a 12-month measurement period).

In the first situation, an employee transfers from one position to another. The employer applies the look-back measurement method to both positions, but applies different measurement periods (i.e., having different durations and/or start dates). The notice describes options depending on whether the employee is in a stability period (i.e., the period of time after the measurement period during which the ACA's employer shared responsibility, or pay or play, mandate penalty is assessed) at the time of transfer.

An employee who is in a stability period (or administrative period for new employees) retains his or her status (i.e., full-time or not full-time) through the end of the stability period. At the end of the stability period, the employee assumes the status that he or she would have under the look-back measurement method applicable to the new position, but including hours of service in the first position.

For an employee not in a stability period at the time of transfer, the employee's status is determined solely under the look-back measurement method applicable to the new position as of the date of transfer, including all hours of service in the first position.

An employer includes hours of service earned in the first position either by counting the hours of service using the counting method applied to the employee in the first position (e.g., using a weekly equivalency method for nonhourly employees), or recalculating the hours of service earned in the first position using the hours of service counting method applied to the employee in the second position (e.g., using a monthly equivalency method for nonhourly employees), provided the employer treats all similarly situated employees consistently.

The second situation addressed in the Notice pertains to ALEs that want to change the duration or start date of the applicable measurement period under the look-back measurement method for a category of employees. The Notice explains that the status of affected employees is determined as if the employees had transferred from a position to which the original measurement method applies, to a position to which the revised measurement method applies as of the effective date of the change.

The Notice also clarifies that ALEs may change between the look-back and monthly measurement methods for a category of employees provided the transition rules apply to all employees impacted by the change for a transition period after the effective date of the method change. The status of each affected employee as of the date of the change is determined as if, on the date of the change, each employee had transferred from a position to which the original measurement method applies to a position to which the revised measurement period applies.

Notice 2014-49 will be published in Internal Revenue Bulletin 2014-40 on September 29. Public comments must be submitted by December 29, 2014. The IRS and Treasury anticipate issuing further guidance after considering the comments received. However, taxpayers may rely on this Notice through 2016.

Background

The ACA's employer shared responsibility mandate subjects an ALE to a penalty if it fails to offer minimum essential coverage to its full-time employees or if the coverage offered does not provide minimum value and affordability requirements. A full-time employee works an average of 30 hours per week.

Full-time status is determined using either the monthly measurement method or the look-back measurement method. Under the monthly measurement method, an employee generally is treated as a full-time employee for any calendar month in which the employee averages 30 or more hours of service per week. Under the look-back measurement method, an employee is generally treated as a full-time employee for any month within a stability period if the employee averaged 30 or more hours of service per week during the applicable measurement period preceding the stability period.

An employer that uses the look-back measurement method sets the starting date and length of:

• The standard measurement period, which is used for ongoing employees; and
• The initial measurement period, which is used for new variable-hour, seasonal or part-time employees.

Different measurement methods and periods may be used for certain specified categories of employees (e.g., collectively bargained vs. noncollectively bargained employees; collectively bargained employees under separate collective bargaining agreements; salaried vs. hourly employees; employees working in different states).