Measurement Periods, Stability Periods and Administrative Periods

Determining Full-Time Employees for Purposes of PPACA’s Employer Shared Responsibility Provisions

By Kristi R. Gauthier, Esq.
Clark Hill PLC

April 2013 – Beginning in 2014, applicable large employers who fail to offer affordable minimum essential health coverage to at least 95 percent of full-time employees  and their dependent children that provides minimum value could face potential penalties if a full-time employee obtains a tax credit for coverage on an exchange. Employers must determine which of their employees are “full-time” employees for purposes of the Patient Protection and Affordable Care Act (“PPACA”). Therefore, it is crucial for an employer to track the hours of service for each of its employees in order to know which employees are considered to be “full-time employees” and could potentially trigger penalties for the employer.

Realizing that it was administratively difficult for employers to measure employees’ hours in real time and add and drop employees month to month during a plan year, the Departments issued a safe harbor for determining employees’ full-time status. The rules are complex but this article will provide an overview of the general concepts.

Overview of The Safe Harbor Rules
The safe harbor introduced the following concepts:

• Standard Measurement Period: The “look back period” during which an employer measures the hours of service for its employees in order to determine their status as full-time or part-time. This period can be between three and twelve consecutive calendar months.

• Stability Period: The “hold period” during which those employees are locked into full-time or part-time status based on the hours of service during the standard measurement period, regardless of how many hours the individuals work during the stability period.  This period must be at least six consecutive calendar months and no shorter than the employer’s elected standard measurement period. (For example, if the employer chose a 12 month standard measurement period, the stability period would also have to be 12 months.)

• Administrative Period:  The optional period during which an employer can determine which employees are full-time employees, notify and enroll eligible employees in coverage, etc. (similar to an open enrollment period). This period cannot be longer than 90 days.

Ongoing Employees
For ongoing employees (e.g., those employees on an employer’s payroll for a measurement period), the employer will measure each employee’s hours of service during the elected standard measurement period to determine each employee’s status. Each employee will be locked in as either full-time or part-time during the immediately following stability period, regardless of the number of hours worked during the stability period. The following illustration provides an example and shows the interplay of these various periods.

New Hires
For new hires, the rules are a bit different. If an employee is reasonably expected at his or her start date to work full-time, an employer that sponsors a group health plan that offers coverage to the employee at or before the conclusion of the employee’s 90 days of employment will not be subject to the employer shared responsibility payment by reason of its failure to offer coverage to the employee for up to the initial 90 days of employment.

For new hires who, at the time of their hire, the employer cannot determine if the employee is reasonably expected to work full-time, then the employer can deem that employee to be a “variable hour employee” and employers are permitted to determine whether the new employee is a full-time employee using an “initial measurement period” of between three and 12 months, as chosen by the employer. The employer measures the hours of service completed by the new employee during the initial measurement period and determines whether the employee completed an average of at least 30 hours of service per week during this period. The stability period for such employees must be the same length as the stability period for on-going employees. As in the case of a standard measurement period, if an employee is determined to be a full-time employee during the initial measurement period, the stability period must be a period of at least six consecutive calendar months that is no shorter in duration than the initial measurement period and that begins after the initial measurement period (and any associated administrative period).

If a new variable hour or seasonal employee is determined not to be a full-time employee during the initial measurement period, the employer is permitted to treat the employee as not being a full-time employee during the stability period that follows the initial measurement period. This stability period for such employees must not be more than one month longer than the initial measurement period and must not exceed the remainder of the standard measurement period, plus any associated administrative period in which the initial measurement period ends.

Transition of A New Hire To An Ongoing Employee
The ultimate goal is to transition the newly hired employee onto the same measurement cycle as existing, on-going employees. Therefore, once a new employee who has been employed for an initial measurement period has also been employed for an entire standard measurement period, the employee must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same conditions as other on-going employees. For example, an employer with a calendar year standard measurement period that also uses a one-year initial measurement period beginning on the employee’s start date would test a new variable hour employee whose start date is February 12 for full-time status first based on the initial measurement period (February 12 through February 11 of the following year) and again based on the calendar year standard measurement period (if the employee continues in employment for that entire standard measurement period) beginning on January 1 of the year after the start date.

Next Steps
Applicable large employers subject to the employer shared responsibility provisions need to determine how they will calculate hours of service to determine which of their employees will be considered “full-time.” Employers should carefully review their workforce to determine the length of the “standard measurement period” and the “stability period” that will best serve their needs. For example, employers with a fluctuating or seasonal workforce may find it advantageous to utilize a shorter measurement period and stability period, while others may determine that utilizing a longer measurement period works best in terms of averaging employee hours of service over a longer period of time. This is a subjective analysis that is based upon the specific and unique circumstances of each employer’s workforce.

Employers should also consider whether to include an “administrative period” to allow time to determine which employees are considered “full-time” and to communicate group health plan information and enroll eligible employees who are considered full-time. It is also important for employers to implement adequate administrative and recordkeeping processes in order for the employer to efficiently and accurately track and document each employee’s hours of service and applicable status.

Given the effective date for the employer shared responsibility provisions is right around the corner, employers should work with their legal counsel and/or benefits consultants to analyze their workforce and put together a plan of action for compliance.

*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.