Updated January 2, 2019
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 the look-back eligibility-testing method.
This method is a way of determining full-time status. Form 1095-C is the IRS form that documents an employee’s access to health insurance at their place of employment. To complete Form 1095-C, an employer can use the look-back method in order to provide the required tracking of every employee’s hours, for both variable-hour employees and full-time employees.
Remember, documentation of this ACA tracking is mandatory even:
- For employers who have been offering quality coverage all along at little or no cost to employees
- For employers who have opted to take the penalty for offering no coverage
The ACA look-back measurement method
One 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 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. The Integrity Data ACA Compliance Solution also incorporates employers with salary/full-time paid employees using the look-back measurement method too.
Advantages to using the look-back measurement method
The advantage to using the look-back measurement method is that the employee would have to average at least 130 hours a month within the test period.
Example: If a Standard Measurement Period is 12 months, then an employee would have to have worked a total of 1,560 hours during that period (130 hours per month times 12 months). An employee may fall below 130 hours in a particular month but as long as they work 1,560 hours during the Standard Measurement Period, they would be a full-time employee.
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 full-time employees do not use an Initial Measurement Period or a Standard Measurement Period
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 employees have waiting periods, not testing periods, and have an employment type of FULL-TIME in the Integrity Data ACA Compliance Solution.
The need for ACA record keeping
The look-back method does not lessen the administrative record keeping in monitoring employee hours of service.
- 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. The regulations define an hour of service to mean:
- “Each hour for which an 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 by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.”
There are 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 or variable hour, 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 variable-hour workers, that may or may not have varying schedules, using the look-back measurement method would have advantages in minimizing risk.
Software that supports the ACA look-back measurement method
When determining employee eligibility for health insurance, Integrity Data’s ACA Compliance Solution will auto-populate the IRS Form 1095-C and 1094-C.
To learn more about our ACA tracking and ACA reporting service:
- Tour the ACA compliance section of our site.
- Watch our on-demand webinar on ACA reporting for employers.
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.