Before the ACA, most employers considered full-time employees to be persons who worked 40 hours per week. The ACA defines full-time employees as persons who work 30 hours per week (or 130 hours per month). That’s 2 hours less per workday. We don’t know how they came up with 30 hours, but Washington, D.C. has a lot of nice sidewalk cafes, where one could easily lose track of time and spend two hours at lunch. We suspect that policymakers came up with the 30-hour rule during one of these two-hour lunch breaks.

Washington policymakers were on a roll in 2010.

Let’s start with a refresher. To avoid penalties under section 4980H(a) of the Internal Revenue Code (the “awful” penalty), applicable large employers (ALEs) must offer minimum essential coverage to 95% or more of their full-time employees and (at least) their non-spouse dependents.   To avoid penalties under section 4980H(b) of the Code (the “bad” penalty), the lowest cost option offered by ALEs to full-time employees must be (1) affordable and (2) meet minimum value.

The ACA allows employers to choose between the following two measurement methods to determine which employees are treated as full time versus part-time for section 4980H purposes:

• The Monthly Measurement Method
• The Look-Back Measurement Method

Determining full-time employees is easy for most of the public sector workforce. Employers typically know who works full-time (30 or more hours per week or 130 hours per month) and who works part-time (less than 30 hours per week or 130 hours per month). We think most public employers use the
Monthly Measurement Method. But there will be times when they wished they used the Look-Back Measurement Method for hourly workers.  Sally may announce she won a moose hunting ticket and change her status to part time for three months in the fall. Billy may have to take up the slack by increasing his hours above 30 per week.  Billy is enrolled in MNSure and receives premium tax credits.  If he increases his hours to above 30-per week, the employer may receive a penalty under the 4980H(b). 

Under the monthly measurement method, an employer determines each employee’s status as a full-time employee by counting the employee’s hours of service for each calendar month. Here is how you do it:

B-1. Count Hours of Service. Using the same counting techniques for hours of service described in D. of Section 3, calculate hours of service for each employee for every calendar month. If an employee works for two employers that are part of the same controlled group, hours of service for each employer are added together to determine full-time status.

B-2. Payroll Period/Weekly Method. If you really want to get creative, you can use the Payroll Period/Weekly Method, which the feds consider to be a subset of the Monthly Measurement Method. This method allows employers to count hours weekly. For this purpose, a week means any period of seven days applied consistently. The reason some use this rule is because it aligns with payroll practices and allows them to use hours that are counted for determining wages to also determine an employee’s full-time status.

If you really want to get creative, you can use the Payroll Period/Weekly Method, which the feds consider to be a subset of the Monthly Measurement Method. This method allows employers to count hours weekly. For this purpose, a week means any period of seven days applied consistently. The reason some use this rule is because it aligns with payroll practices and allows them to use hours that are counted for determining wages to also determine an employee’s full-time status.

Weevil County has a volunteer firefighter relief organization that offers high stakes bingo every Wednesday night. To support the firefighters, the county schedules payday for Wednesdays. It measures hours for payroll from Wednesday through the following Tuesday.

Weevil uses the Payroll Period/Weekly Rule under the Monthly Measurement Method for its hourly workers. They count the first week that includes the first day of the month. In January 2023, the first week begins on Wednesday, December 28th and ends on Tuesday, January 3rd. The last week begins on Wednesday, January 18^th, and ends on Tuesday, January 24^th.  The final week of January is not taken into account because it includes January 31, the last day of the month. In 2023, at least, January had 4 weeks under the Payroll Period/weekly Rule.

Dianna is a part-time employee who usually works 25 hours per week. She attends the firefighter’s bingo game every Wednesday night. She bets heavily and loses for three weeks straight. Fortunately, a coworker falls ill. Dianna puts in for overtime and works 50 hours in the fourth week so she can pay her bills.

Manuel is hired as a full-time bookkeeper for the City of Lost Hope on January 2^nd, 2023.  Since January will be a partial month of employment, the first three full months of his employment will be February, March, and April.  Because he is offered coverage effective May 1^st, Lost Hope will not be subject to a penalty under 4980H(a) or (b).  During that period, Manuel will be reported on Form 1095-C as being in a “Limited Non-Assessment Period.”[6]

In addition to the waiting period rule under 4980H, the City must also comply with the 90-day rule.  It has adopted and documented an orientation period for new full-time employees equal to the maximum permissible orientation period depending on the month of hire (if it is 30 days, it turns the 90-day rule into a 120-day rule). Applying the orientation period, Manuel’s orientation period ends on the corresponding day in the following month, minus one day.  Because he was hired on January 2^nd, the corresponding day is February 2^nd.  Subtracting one day means his orientation period ends on February 1.  The 90-day rule begins on February 2.  February 2 plus 90 days is May 3.  Since Manuel is offered coverage on May 1, the City meets both waiting period rules.

After the library fiasco in Example 3, Phil takes a part time job with the City of Wynnewood, an ALE, as an animal control agent. He is scheduled for 10 hours per week. Phil’s neighbor, Joe Neurotic, maintains a private zoo for wolverines. On July 1st, Joe’s favorite wolverine, Max, is devoured by its mate, May. Deep in despair, Joe accidently leaves the gate open to his zoo and 100 wolverines escape into the city. Phil works more than 130 hours that month to catch them.

If Phil’s hours are being tracked using the Monthly Measurement Method, the employer may have to report that he worked full-time in July of 2023 when they complete Form 1095-C. Because Phil was not offered coverage for that same period, was enrolled in MNsure, and was receiving premium tax credits, the IRS will assess a shared responsibility penalty against Wynnewood under Section 4980H(b) of the Code (the “$3,000 penalty”, now indexed to $4,320 in 2023.)  If the wolverines don’t escape again, the penalty will be limited to a single month and calculates to $360.00 ($4,320 divided by 12).

Rather than wait around for a penalty, however, the City explores whether to report on Form 1095-C that Phil was in a “Limited Non-Assessment Period” – a waiting period applicable to new full-time employees generally.  They discuss whether to adopt a “wolverine clause” applying the maximum waiting period to any part-time employees who become full-time as the direct or indirect result of a wolverine escape from Joe Neurotic’s zoo.  The operative rule under 4980H provides as follows:

C-1. Introduction and Overview. When determining who is a full-time employee, someone came up with the idea to use an average of previous hours worked over a reasonable period. It wasn’t a stroke of genius, just common sense. How this idea was implemented in another matter altogether. It’s unacceptably complex.[1]  But accept it we must, and we are going to break it down into bite-sized pieces.  In this introduction, we will start with a broad narrative, describing how it all works in plain English.  Once you get the lay of the land, we’ll move on to more granule rules and definitions.

At a high level, the look-back measurement method includes two distinct sets of rules.  The first set of rules applies to “ongoing” employees.  We define that term later, but it generally means employees who have been employed for over a year.[2]  The next set of rules applies to new hires, and in particular, part-time, seasonal, and “variable hours” employees.

Keep in mind that you can use the much easier monthly measurement method instead of going down this road.  But if you want to exclude seasonal full-time workers beyond the first day following three full months of employment, if you have part-time workers who may exceed 130 hours per month under certain circumstances, or if you have workers whose hours you just can’t predict (think snowplow drivers in the winter of 2023), the look-back measurement method is for you.

When determining who is a full-time employee, someone came up with the idea to use an average of previous hours worked over a reasonable period. It wasn’t a stroke of genius, just common sense. How this idea was implemented in another matter altogether. It’s unacceptably complex.[1]  But accept it we must, and we are going to break it down into bite-sized pieces.  In this introduction, we will start with a broad narrative, describing how it all works in plain English.  Once you get the lay of the land, we’ll move on to more granule rules and definitions.

At a high level, the look-back measurement method includes two distinct sets of rules.  The first set of rules applies to “ongoing” employees.  We define that term later, but it generally means employees who have been employed for over a year.[2]  The next set of rules applies to new hires, and in particular, part-time, seasonal, and “variable hours” employees.

Keep in mind that you can use the much easier monthly measurement method instead of going down this road.  But if you want to exclude seasonal full-time workers beyond the first day following three full months of employment, if you have part-time workers who may exceed 130 hours per month under certain circumstances, or if you have workers whose hours you just can’t predict (think snowplow drivers in the winter of 2023), the look-back measurement method is for you.

In general, the stability period may not be shorter than 6 months, and it also may not be shorter than the measurement period. But the rules vary depending on whether an employee is found to be a full-time employee after the standard measurement period, or a part time employee. With respect to employees who are found to be full-time employees, the following rules apply:  

• If the standard measurement period is 3 months, the shortest stability period is 6 months, but could be up to 12 months.
• If the standard measurement period is 6 months, the shortest stability period is 6 months, but could be up to 12 months.
• If the standard measurement period is 12 months, the shortest stability period is 12 months.

Employers may choose between the monthly measurement method and the look-back measurement method for different classes of employees. They may also apply different measurement, administration, and stability periods for different classes of employees. The problem is that the IRS, and not employers, gets to pick which classes of employees can be subject to different rules.  This prevents employers from making common sense decisions about what rules work best for different segments of their workforce.

Under these classifications, you can apply different rules to the following groups of employees:

• Collectively bargained employees and non-collectively bargained employees.
• Each group of collectively bargained employees covered by a separate collective bargaining agreement.
• Salaried employees and hourly employees.
• Employees whose primary places of employment are in different states.[3]

The City of Maple Swamp hires Angel to work full-time in a city-owned liquor store. Angel is eligible for health insurance, but the city has adopted a one month waiting period. Angel desperately needs a knee replacement and can’t wait until the insurance kicks in.

Bob, the city attorney, visits the liquor store three weeks later to buy a bottle of Rot Gut Dew. He’s the only one in town who drinks the stuff, and they order it just for him. But the shelf is empty when he arrives. Bob confronts Angel in a fit of anger and implies that the stock has been stolen. Angel quits on the spot.

If you hire someone you reasonably expect to be a full time employee, you have to offer them coverage right away, though you may subject them to a waiting period that is not longer than three full calendar months. We recommend you use the monthly measurement for full-time employees.  If you hire someone you are confident will be and remain a part-time employee, unless and until you promote them to a full-time position, it would be nice to be able to use the monthly measurement method for them as well.

We described the standard measuring period for the look-back measurement method, which we generally recommend be 12 months. The standard measurement period is the timeframe over which hours of service are measured for ongoing employees. The standard measurement period always starts on the same date and renews in a never-ending cycle.

Saul spends five years in prison for shoplifting in Alabama. He does his time on a chain gang picking up roadkill, and grows to like it. When he is finally released, he moves to far Northern Minnesota, vowing never again to cross the Mason Dixon line. He takes a part time job with Quick Deer County picking up roadkill.

Saul begins his job on March 5^th. The county uses the payroll method for counting hours, and they pay semi-monthly (on the 15th and the 30th of each month). They have the option to begin Saul’s initial measurement period on the start date of his employment, or any date between the start date and the later of (a) the first day of the first calendar month following the start date, or (b) the first day of the first payroll period that begins after the start date. The first payroll period is March 15, but the county wants all new variable hour, seasonal, and part-time employees to begin their initial measurement method on the first day of the month, so they won’t have to administer more than 12 measurement periods (in the worst-case scenario). They start counting Saul’s hours on April 1.

The City of Wild Rice is an applicable large employer and maintains a calendar year health plan. It uses the look-back measurement method for new hires that are seasonal employees, part-time employees, and variable hours employees.  It has adopted an initial measurement period of 12 months that begins on or after the first day of the month following an employee’s date of hire.  It is followed by an administration period of one month, and a stability period of 12 months.

Joey Joseph (“Jo Jo”) is hired by the Charles Lindberg School District as a janitor on June 15^th, 2022. He is reasonably expected to work part time. Accordingly, he enters his initial measurement period on the first day of the following month, July 1, 2022.

We asked the Charles Lindberg School District to keep things simple so we could use them in an example. Accordingly, they adopt a calendar year health plan. They use a 12 month initial measurement period and a 12 month stability period. They do not use an administrative period so there is no risk of running afoul of the 13^th month rule.

When measuring ongoing employees, they also use a 12 month standard measurement period that begins on January 1 of each year and ends on December 31 of the year. They use a 12 month stability period following the standard measurement period, which beings on January 1 and ends on December 31. They don’t use an administrative period or a waiting period following the standard measurement period.

When it is time to complete IRS Form 1095-C, Applicable Large Employers will need to choose among certain “codes” in line 16 of the Form. We sometimes refer to these as “excuse codes” – codes that explain why certain full-time employees were not made an offer of coverage during certain months of the year or for the entire year.  There’s no code for “we just don’t like that guy,” but 5 of the 6 codes are waiting periods associated with the Monthly Measurement Method and the Look-Back Measurement Method.  We’re listing them here, but we’ll include a link back to this section when we describe how to fill out these forms.

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