The Look-back Measurement Method and COVID-19

The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees or possibly pay a penalty. This employer mandate is also known as the “employer shared responsibility” or “pay or play” rules. ALEs can use one of two methods to determine whether employees are full time under the employer shared responsibility rules:

• The monthly measurement method determines full-time status for each calendar month based on the employee’s hours of service in that month.
• The look-back measurement method determines full-time status for a longer period of time-based on average hours of service during a prior period.

The evolving coronavirus (COVID-19) pandemic has caused some confusion and uncertainty in applying the look-back measurement method during periods of layoff, furlough, and COVID-19 related periods of paid and unpaid leave.

HOURS OF SERVICE

To determine an employee’s hours of service, an employer must count:

• Each hour for which the employee is paid or entitled to payment for the performance of duties for the employer; and
• Each hour for which an employee is paid or entitled to payment on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity, layoff, jury duty, military leave or leave of absence.

All periods of paid leave must be taken into account.

Special rules apply for certain types of unpaid leave, including FMLA leave, and for rehired employees.

Overview

The IRS created the look-back measurement method to give ALEs greater predictability and stability for determining full-time status. The look-back measurement method involves:

• A measurement period for counting hours of service (called a standard measurement period or an initial measurement period, depending on the circumstances);
• An optional administrative period that allows time for enrollment and disenrollment; and
• A stability period during which coverage is provided if the employee averages full-time hours during the prior measurement period.

If the employee was employed, on average, at least 30 hours of service per week during the measurement period, the ALE must treat the employee as a full-time employee for the stability period. This rule applies regardless of the employee’s number of hours of service during the stability period, as long as he or she remains an employee, unless a special rule applies.