ACA Pay or Play Penalty – When to Begin Tracking Employee Hours

Most of the confusion we encounter regarding the employer shared responsibility or pay or play rules is regarding when to begin tracking employee hours and how to determine when the measurement period should begin.

The pay or play rules of the Affordable Care Act (ACA) will take effect for most large employers beginning on January 1, 2015. Large employers for 2015 are those identified as having 100 or more full-time employees (including full time equivalents, FTEs). Large employers for 2016 are those identified as having 50 or more full-time employees (including FTEs).

Due to transition relief, the final regulations (published 2/12/14) allow employers to use shorter measurement periods for stability periods starting in 2015. These shorter periods are shorter than 12 consecutive months, but not less than six consecutive months long.

To illustrate this, if your plan year begins 1/1/15, your transitional measurement period would have begun April 3, 2014 and your 90-day administrative period would run from October 3-December 31, 2014. Your 12-month stability period would then run from 1/1/15-12/31/15.

Per the final regulations, the latest your measurement period could begin would be July 1, 2014 and this would not allow any time for an administrative period between your measurement and stability periods for a January 1, 2015 plan. A word of caution, this would likely not provide you enough time to make sure hours have been tracked and calculated properly or give you time to address any issues that are discovered from reviewing the measurement period prior to the start of your stability period.

The Affordable Care Act poses many questions, below are some of those that are most frequently asked regarding the tracking or measurement period:

Q. Who determines the measurement period?

Under the transitional rules contained in the final regulations, the employer can choose the length of the measurement period for the first year of compliance only. For non-calendar year plans (e.g., July 1), compliance will begin with the plan year starting July 1, 2015.

For that first compliance year, the measurement (“look back”) period cannot be less than six consecutive months long, cannot begin LATER than July 1, 2014 and must end no EARLIER than March 31, 2015 (90 days before the first day of the 2015/2016 plan year).

It makes practical sense to use a 12-month measurement period, even for the first year. That will help ‘smooth the bumps’ in calculating FTE status for your part-time, variable hour employees (e.g., substitute teachers, bus drivers, etc.).

NOTES:

• for plan years beginning July 1, 2016 and later, the measurement period must be twelve months
• the measurement period described above refers to determining the status of your ongoing full-time employees. New hires, part-time, variable hour and seasonal employees all have different measurement periods based on their date of hire.

Q. Once a measurement period is determined by an employer, can it be changed?

A. There is nothing in the regulations currently that would preclude an employer from changing the measurement period. However, there is not a lot of flexibility going forward other than to shorten the administrative period (stability periods would sync up with the plan year). Also, as a caution, you must make sure that you are not changing the measurement period in effort to circumvent the intent of the legislation—by preventing someone from coverage that would otherwise be eligible. Keep that in mind and review your decision with legal counsel prior to making a change.

Q. Can we use a 10-month measurement period for an employee who is only employed during the school year? Is the answer different for a full-time employee v. a part-time employee?

A. Generally, the measurement period must equal the stability period. However, the final regulations do allow employers to use a shorter measurement period for employees (part-time and full-time) who work only during the school year – as long as the rule is applied consistently for all similarly situated employees.

If you choose the 10-month option for these employees, you must average the hours worked during the school year (i.e., excluding the summer break) to determine if they qualify as FTEs.

If you instead choose to use the 12-month option for these employees, you must credit the average hours worked during the 10-month school year to the two summer break months, up to a maximum of 501 hours. The result (average hours worked/week during the measurement period) will be the same under either method.

Q. When should you begin tracking employee hours?

A. While each employer’s situation is unique, based on the regulations if you are not tracking the hours now you must begin tracking them July 1, 2014.