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How the Look-Back Measurement Method Can Prevent ACA Penalties

Craig Rees • Jul 29, 2021
While filing ACA information to the IRS, determining the accurate number of workers can be a stressful experience. But it is of primary significance as any mistake can lead
The Look-Back Measurement Method Can Help Prevent ACA Penalties

Filing Affordable Care Act (ACA) information with the IRS can be stressful, especially when determining if employees should be classified as full-time under ACA regulations. Mistakes can lead to costly IRS penalties, so it is important to understand the rules and use the proper measurement methods when planning ACA compliance. The IRS has provided two options for determining full-time status under the ACA: the Monthly Measurement Method and the Look-Back Measurement Method. 

The Look-Back Measurement Method

The Look-Back Measurement Method allows employers to review past hours worked over a defined period to determine if an employee should be classified as full-time for ACA purposes going forward. This method is useful for employees with variable hours that fluctuate week-to-week including seasonal employees. There are three components to the Look-Back Measurement Method: 

1. The Measurement Period

In the measurement period, an employer tracks and calculates the average hours worked per month over a defined time frame. This measurement period can range from 3-12 months, with a longer period providing a more accurate picture of average hours worked. 

2. The Administrative Period

After the measurement period ends, employers can take up to 90 days for an administrative period to determine coverage offers based on measurement period data. This allows time for paperwork, determining full-time status, and processing new enrollments. 

3. The Stability Period

This is the period where coverage is provided consistently based on the measurement period results. Even if an employee's hours are reduced during the stability period, their status as full-time or non-full time remains fixed until a new measurement period begins. The stability period must be at least as long as the measurement period. 

Here’s an example:

Jack has been working at a pizzeria for nearly a year, with fluctuating weekly working hours. The manager is uncertain about his full-time or part-time status and chooses to use the Look-Back Measurement Method. 

The company mandates that full-time employees work 142 hours per month. The initial measurement confirms that Jack averaged 142 hours. The manager takes 30 days for the initial administration period to prepare Jack's healthcare offer. 

Despite variations in his hours, Jack consistently worked an average of 142 hours each month. As a result, he is classified as a full-time employee for the next 12 months, making him eligible for minimum essential coverage. 

The Takeaway

The Look-Back Measurement Method is an important tool for determining full-time status under the ACA. It involves reviewing past hours worked over a measurement period to calculate average hours and assign appropriate full-time status going forward. The structured periods of measurement, administrative, and stability provide employers a framework to properly classify employees, determine coverage offers, and maintain consistency period-to-period. 

Managing ongoing compliance with ACA regulations around full-time status can be a challenge. However, solutions like ACA Reporter from Points North are designed to simplify this process for employers. With automated tracking, measurement, and reporting features, ACA Reporter serves as a key tool for classifying full-time employees, determining coverage offers, and maintaining compliance over time.  

Contact us today to learn more about how we can streamline your compliance to save you time and money while giving you peace of mind. 

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