Busting the Myths of Measurement Periods

Jun 23 2014 | Jill Brooking                                                                                         

In 2015, PPACA will change how employers define group health plan eligibility. Employers historically had flexibility in determining whether they sponsored a group health plan and if so, to which employees they offered coverage. Those that offered a group plan commonly based eligibility on classifications such as job title or geographic location. Under PPACA, large employers (those with 50 or more full-time equivalent employees) will be required to sponsor a group health plan or risk an employer shared responsibility payment, more commonly known as the employer mandate penalty. Further, all employees working 30 hours or more per week must be eligible for coverage (regardless of classification) or, again, the employer will be at risk for a penalty. Seems simple enough, right?

Well, as we all know, it is anything but simple. The primary confusion for employers is determining to whom they need to offer coverage. They all want to know more about the look-back period (a.k.a. measurement period). When is it? How does it work? They are looking to you for guidance.

In this blog post, I will identify and bust the common myths of measurement periods.

Myth #1: We have to measure all of our employees’ hours during the look-back period. If an employer is trying to calculate their size and determine whether they are subject to the employer mandate, then they must take into account the hours worked by all employees. This, however, is different from a look-back/measurement period. An employer’s size is determined by looking at the number of employees and their hours in the previous calendar year. If an employer has well over 50 full-time equivalent employees (100 for 2015), then there is no need to calculate hours for all employees. The look-back/measurement period is a safe harbor used only when the employer cannot reasonably determine whether the employee is a full-time employee. More specifically, the measurement period may only be used for variable-hour and seasonal employees. These are the basic rules that guide employee classification:

• If the employee regularly works 30 hours or more per week, he/she is full time and must be offered coverage.
• If the employee does not regularly work 30 hours or more per week, he/she is not full-time and is not required to be offered coverage.
• If the employee’s weekly hours vary from 30 hours or if he/she is a seasonal employee, he/she should be placed in a measurement period.

Myth #2: We are going to choose a three-month measurement period, from January to March, because that’s when our seasonal employees aren’t working. If we choose a shorter measurement period, fewer employees will qualify as full time. The opposite is actually true. As background, an employer is free to choose the length of its measurement period. It may be any length from three to 12 months. However, the measurement period is ongoing.

• So, if an employer chooses a three-month measurement period, this means that they will be calculating employees’ hours four times a year.
• Alternatively, if the employer chooses a 12-month measurement period, they are calculating hours only once per year.
• If an employee worked full-time hours during only a few months, this is averaged over a 12-month measurement period, which results in the employee not being a full-time eligible employee and thus, not offered coverage.

So, the truth is that if the measurement period is longer, fewer employees will qualify as full time.

Myth #3: Calculation of hours for new employees hired in the middle of the measurement period is prorated based on the length of time remaining in the measurement period. It is important to remember that an employer needs to implement two different types of measurement periods. The measurement period for ongoing employees is called the standard measurement period. The measurement period for new employees is called the initial measurement period. Each new variable hour or seasonal employee will have his or her own initial measurement period based on the date of hire. It may begin on the employment start date, the first of the month following or any day in between. A new employee will complete the initial measurement period with the subsequent initial stability period before syncing up with the standard measurement period for ongoing employees.