Tracking Seasonal & Variable Hour Employees

In-Depth Guide to Tracking Seasonal and Variable Hour Employees Using the Look-Back Measurement Method

For employers who rely on a workforce with fluctuating hours, such as seasonal workers or part-time staff, the ACA provides a framework for determining whether an employee is full-time and eligible for health coverage. The Look-Back Measurement Method allows employers to assess an employee’s hours over a defined period to decide whether they should be offered benefits. This method is particularly useful for businesses where employees’ hours are unpredictable or vary significantly throughout the year.

IRS Framework for the Look-Back Measurement Method

The Look-Back Measurement Method is designed to give employers flexibility in determining employee eligibility for health coverage. According to the IRS (TD 9655), this method allows an employer to measure an employee’s hours over a specific period (the measurement period) and then lock in the employee’s full-time or part-time status during the subsequent stability period.

Here are the key details:

1. Measurement Period:
   • Employers can choose a measurement period between 3 and 12 months. During this period, employers track employee hours to determine if they meet the ACA’s definition of full-time (working at least 30 hours per week or 130 hours per month).
   • The measurement period must be uniform for all employees within a given category (e.g., hourly, salaried, seasonal, collectively bargained, etc.).
   • This tracking period ensures that employees who work fluctuating hours (e.g., during peak business seasons or holidays) are accurately classified.

   Example:
   If a company selects a 12-month measurement period running from January 1st to December 31st, they will monitor employees’ hours during this time. If an employee works an average of 130 hours per month, they must be classified as full-time for the next stability period.

2. Stability Period:
   • The stability period immediately follows the measurement period. During this period, an employee’s status as full-time or part-time is locked in, regardless of any fluctuations in their actual hours worked.
   • If an employee is determined to be full-time during the measurement period, they must be offered coverage for the duration of the stability period, even if their hours drop below the full-time threshold.
   • The stability period must be at least as long as the measurement period and no less than 6 months. The stability period guarantees consistency, so employees do not lose coverage due to temporary reductions in hours.

   Example:
   If the measurement period runs from January 1st to December 31st and an employee qualifies as full-time, the stability period will begin on January 1st of the next year. During this stability period (which could also be 12 months), the employee will maintain full-time status and must be offered benefits, even if their hours drop temporarily.

3. Administrative Period:
   • The ACA allows employers a short administrative period to review the hours worked during the measurement period, determine eligibility, and notify employees.
   • The administrative period cannot exceed 90 days and must not create any gaps in coverage. This ensures that employees who qualify as full-time are offered coverage in a timely manner.
   • The administrative period provides employers time to process data, make benefit offerings, and inform employees of their coverage status.

   Example:
   If a measurement period ends on December 31st, the employer has until March 31st to complete the administrative process and offer coverage. Coverage must be effective no later than April 1st, ensuring a smooth transition into the stability period.

Types of Employees and the Look-Back Measurement Method

1. Variable Hour Employees:
   • A variable hour employee is one whose hours fluctuate, making it difficult to predict whether they will work at least 30 hours per week.
   • Under the ACA, variable hour employees are ideal candidates for the Look-Back Measurement Method because it allows their hours to be assessed over a longer period, providing a clearer picture of their full-time or part-time status.
   • If a variable hour employee is determined to be full-time during the measurement period, they must be offered health coverage during the stability period, even if their hours decrease afterward.

   Example:
   A retail employee whose hours increase during the holiday season may be considered variable hour. If their hours over a 12-month measurement period average at least 130 hours per month, they will be classified as full-time during the next stability period.

2. Seasonal Employees:
   • A seasonal employee works for a limited duration based on seasonal demands, typically 6 months or fewer in a year.
   • Employers can use the Look-Back Measurement Method to determine whether seasonal employees qualify for health coverage. For example, an employee who works only during summer months may not average 130 hours per month over the entire measurement period, and therefore may not be eligible for full-time benefits.
   • The ACA allows flexibility for seasonal employees, but tracking hours accurately is crucial for compliance.

   Example:
   A summer lifeguard might work 40 hours per week during June, July, and August but no hours for the rest of the year. When averaged over a 12-month measurement period, the employee’s hours would fall below the full-time threshold, meaning they would not be classified as full-time.

Recordkeeping and Compliance

To stay compliant with ACA regulations, employers must document and track employee hours carefully. This includes keeping detailed records of each employee’s hours worked during the measurement period, stability period, and administrative period.

1. Formal Documentation:
   • The measurement and stability periods should be included in formal plan documents, such as the Summary Plan Description (SPD) or employee handbooks. This ensures that all employees and employers are on the same page regarding benefits eligibility.
2. Ongoing Tracking:
   • Employers should utilize payroll systems or time-tracking software to monitor employee hours consistently. Accurate recordkeeping helps to determine eligibility and defend against potential IRS audits.
   • Employers should maintain these records for at least three years to ensure they have the necessary data for ACA compliance reporting (e.g., Form 1095-C filings).
3. Communication to Employees:
   • Employees must be notified of their benefits eligibility status after each measurement period, especially if there are changes to their full-time or part-time classification.
   • Employers should provide clear and transparent communication to avoid confusion and ensure compliance with notification requirements.

Choosing the Right Measurement Method

Employers must choose a measurement method that works best for their workforce. For example, companies with employees who work consistent hours may find the Monthly Measurement Method simpler to administer. In contrast, companies with variable hour or seasonal employees will benefit from the flexibility of the Look-Back Measurement Method.

1. Monthly Measurement Method:
   • In the Monthly Measurement Method, an employee’s status is determined on a month-to-month basis. If the employee works 130 or more hours in a calendar month, they must be classified as full-time and offered benefits for that month.
   • This method can result in fluctuations in benefits eligibility, particularly for employees whose hours change frequently.
2. Look-Back Measurement Method:
   • The Look-Back Measurement Method offers more stability, as it locks in an employee’s status over a longer period. This is especially useful for employers with part-time, variable hour, or seasonal employees.
   • Employers must apply the same method consistently to all employees within a category but have flexibility to choose different methods for different employee groups (e.g., hourly vs. salaried employees).

   Example:
   A company could use the Look-Back Measurement Method for hourly employees and the Monthly Measurement Method for salaried employees, allowing for flexibility while maintaining compliance.

Flexibility for Different Employee Categories

The ACA regulations allow employers to apply different measurement methods to different employee categories, as long as the method is consistent within each category. Employers can choose different methods for:

• Hourly vs. salaried employees,
• Collectively bargained vs. non-bargained employees,
• Employees in different states or regions, or
• Employees in different divisions or classifications.

Note: Employers must ensure that the method chosen for a particular category is applied consistently and documented clearly.