If you are reading this article, it's likely because you have clients who are affected by the ACA requirements for Applicable Large Employers (ALE) to offer affordable coverage to its full time employees. Like many people, you've probably read a lot of articles or blogs on what this means, and the only thing you know for sure is that this topic is so complex that you need help understanding what you need to do.
Our ACA tool will help you with the two primary functions:
- Manage employee eligibility by tracking the hours worked of the non-full time employees to determine the appropriate measurement dates and eligibility associated with new hire and standard stability periods.
- IRS 1095/1094 Reporting
Measurement Periods: An Overview
Note, this is an extremely simplified overview and should not be considered as legal advice.
Employees who are reasonably expected to work 30+ hours per week are considered full time and must be offered coverage no more than 90 days after start of employment. For those positions in which it can not be reasonably determined at the start date that an employee is reasonably expected to work 30 hours per week, primarily employees whose hours of service vary significantly, the employees may be classified as a variable hour employee.
The look-back measurement method is the preferred method of tracking the hours a variable employee worked, and is referred to as the measurement period. If the employee worked an average of 130 hours a month, he is considered a full time employee, and must be offered coverage. The initial measurement period is the first measurement period that applies to new employees. The standard measurement period is the measurement period that applies to ongoing employees. Employees graduate to the standard stability period when they have been employed for the full standard measurement period.
An employer may elect to have an administrative period of no longer than 90 days between the measurement period and the stability period. There are very specific rules regarding the measurement periods that need to be considered prior to establishing these dates. There are two points that we want to bring to your attention. First, the administrative period includes the period of time between the hire date and the start of the measurement period, the administrative period, and the time between the date coverage is made available cannot exceed 90 days. Secondly, for new hires, the measurement period and any administrative period cannot extend beyond the last day of the first calendar month after the employee's first anniversary date. In practice, that means a 12 month measurement period and 3 month administrative period would not be permissible.
A variable hour employee who meets the hours requirement in their measurement period is then offered coverage for the subsequent stability period. The stability period is the time that follows a measurement period during which the variable hour employee must be treated as full time, even if their hours drop below the 30 hours per week threshold. Variable hour eligibility is based on a subsequent stability period, and must be re-evaluated in the next measurement period to continue coverage.
12 Month Stability
With that overview on the regulation for measuring variable hour employees, we have built an eligibility management tool that uses a standard 12 month stability period. While the regulation offers stability periods that may be between 6-12 months, we believe in practical application the burden of administering employee enrollment for periods less than 12 months is not worth the administrative costs associated with managing employees coming on and off the plan so frequently.
Audit Employee Income
Under section 4980H(b) an employer may be liable for a penalty if a full time employee receives a tax credit and the coverage offered by the employer is not affordable or does not provide minimum value. Employee income information is crucial to an accurate affordability calculation. The coverage is considered affordable if the employee's cost of self-only coverage does not exceed 9.56% of employee's household income. Since the employee's household income is generally unknown to an employer, there are three safe harbors that an employer may use to explain why they are not subject to a subsection (b) penalty: Form W-2 Safe Harbor, Rate of Pay Safe Harbor, and the Federal Poverty Line Safe Harbor. In all cases, the employee compensation and hourly rate, if applicable, are key components to these calculations.
Don't want to use ACA?
If you don't want to use ACA for a client, it can be turned off at the company level. Go to the Settings tab, then select the General Settings. Check the 'Disable ACA tab' to remove the ACA tab from the company.