IRS reporting FAQ: Which ACA eligibility measurement method should an employer use?

IRS reporting FAQ: Which ACA eligibility measurement method should an employer use?

ACA measurement methods_Integrity Data ACA Compliance Solution

October 13, 2015

To know which employees the Affordable Care Act says that an employer must cover – and thereby get offers of coverage out soon enough to avoid IRS penalties – an employer can use one of two eligibility-testing methods.

Each method is a way of determining full-time status. To complete Form 1095-C, the new IRS form that documents an employee’s access to health insurance at their place of employment, an employer must choose one of these methods in order to provide the required tracking of every employee’s hours.

Remember, documentation of this ACA tracking is mandatory even:

 

The ACA monthly measurement method

Hours of service_Integrity Data ACA Compliance SolutionThe first method for determining an employee’s full-time status – the more straightforward of the two ACA eligibility-testing methods – is the monthly measurement method. This method isolates the tallying of an employee’s hours to individual months, identifying an eligible employee as one whose hours of service total 130 hours in any one month of a tax year.

When the monthly measurement method is used to confirm an employee as full-time, an offer of coverage would have to be made the first day after the next two full months from the month for which eligibility was determined.

Under this method, an employee whose hours of service were less than 130 hours from January through March, and then totaled at least 130 hours in April, would be eligible for coverage. An offer of coverage would have to be made to that employee no later than July 1st.

 

The ACA look-back measurement method

The other method an employer can use to identify employees as full-time is the look-back measurement method. Using this method, an employer can create a testing period period that spans a number of months; the look-back period cannot be less than 3 months and it cannot be more than 12 months.

Using the look-back method, an employee’s hours of service are calculated to see if, over the entire testing period, they averaged 130 hours per month. When the calculation of hours does pass this test, the employer is obligated to provide the employee access to health coverage during a corresponding stability period.

That stability period, which cannot be less than 6 months, generally mirrors the length of the test months. So if you have a 12-month measurement testing period, you would have a 12-month stability period.

Employers with hourly paid employees use the look-back measurement method.

 

Advantages to using the look-back measurement method

The advantage to using the look-back measurement method is that unlike the monthly measurement method, where the employee just needed to achieve 130 hours in any one month, under the look-back measurement method, they would have to average at least 130 hours in EVERY month within the test period.

A second advantage is that the employee would have to work the entire period in order to become eligible. So, if you have a measurement period of 12 months and the employee only works 11 months, they would not be eligible as they did not complete a testing period cycle.

Important to note here is that whichever measurement method you choose, full-time employees will fall more into the monthly measurement method.

If an employee is “reasonably” expected to work at least 30 hours per week from their start date, they are deemed full-time and an employer must offer them coverage that will begin no later than the first day after their first three full months of employment. Full-time employee have waiting periods, not testing periods.

 

Measurement method does not affect ACA record keeping 

What is often misunderstood in selecting a measurement method is that the selection does not lessen the administrative record keeping in monitoring employee hours.

 

Measurement method options_Integrity Data ACA Compliance Solution

For generation of IRS Form 1095-C, both the monthly measurement method and the look-back measurement method are supported by Integrity Data’s ACA Compliance Solution.

Regardless of which ACA eligibility measurement method is chosen, the employer must keep accurate records of hours of service by month. This accounting is needed to meet the IRS yearly reporting requirement through the generation of IRS Form 1095-C and its transmittal, IRS Form 1094-C. The law requires accurate monitoring of all employees’ hours of service with only two exceptions: a student on a work-study program and a member of a religious order that has taken a vow of poverty. Those are the only two exceptions.

In the end, if you have a workforce with salaried workers, it does not matter which measurement method you select. These employees would be expected to work at least 30 hours per week from their start date and therefore eligible immediately for employer-provided health coverage. For employers with hourly workers, that may or may not have varying schedules, the selection of the look-back measurement method would be the better choice.

 

Software that supports both ACA measurement methods

Whether you use the monthly measurement method or the look-back measurement method to determine employee eligibility for health insurance, Integrity Data’s ACA Compliance Solution will auto-populate IRS Form 1095-C.

To learn more about our 360-degree ACA tracking and reporting engine:

 

 

Integrity Data’s publications and presentations are intended to provide current and accurate information about the subject matter covered. They are designed to introduce employers to the IRS reporting requirements of the Affordable Care Act as of the date published.

These publications and presentations are provided with the understanding that neither Integrity Data, nor the authors and presenters, are rendering any legal or accounting advice. With respect to how the ACA affects your business, verify guidance found with legal counsel.

 

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