8865 / How does an employer measure an employee’s hours in determining whether that employee is a full-time employee for purposes of the ACA shared responsibility provisions?

The employer shared responsibility provisions imposed by the ACA only apply to employers with 50 or more full-time employees (or the equivalent of 50 or more full-time employees). Determining full-time status hinges on an employee’s average hours of service (employees averaging at least 30 hours of service per week are considered full-time and regulations provide that 130 hours in a month is treated as the equivalent of 30 hours per week).¹

An employer has the option of choosing one of two methods for measuring an employee’s hours in order to determine full-time status. The first is a monthly measurement period under which the employer counts the employee’s hours of service each month.² The second is called the “look-back” measurement period. The look-back measurement period, however, cannot be used to determine whether the employer is subject to the shared responsibility provisions in general (i.e, to determine whether the employer is an applicable large employer). The look-back measurement period is used instead (1) to determine whether an employer who is already offering health coverage has failed to satisfy the ACA standards so as to be liable for a penalty and (2) to calculate that penalty.³

The look-back measurement period allows an employer to determine the employee’s status during a later period (the “stability period”) based on the employee’s hours of service during an earlier period (the “measurement period”).⁴ The measurement period must be a period of no more than twelve months and no less than three months, as determined by the employer. The employer can determine when the measurement period starts and ends, so long as that determination is made on a uniform and consistent basis for all employees in the same employment category (the regulations provide examples of permissible employment categories, including, among others, salaried and hourly employees, and collectively bargained and non-collectively bargained employees).⁵

If the employee is a full-time employee during the measurement period, he or she must be treated as a full-time employee during the stability period regardless of whether he or she would be a full-time employee based on hours of service during the stability period. The stability period must be at least six calendar months, but can in no event be shorter than the measurement period.⁶ The final regulations note that an employer is entitled to treat additional employees as full-time employees even if their hours of service would not otherwise cause them to obtain full-time status under either of the measurement options.