What is the requirement for the monthly measurement method?
An applicable large employer (ALE) to have an accurate full-time employee count during each calendar year, especially when it comes to Affordable Care Act (ACA) compliance. An ALE is one who employs 50+ full-time workers. A small business with fewer than 50 full-time employees is not obligated to follow these provisions. There are two ways to measure full-time status of your employees:
- The look-back measurement method
- The monthly measurement method
ALEs who choose not to use the look-back method must use the monthly measurement method. Here, we’ll walk you through this method so you can learn how to make an accurate count of your full-time employees and avoid penalty fines.
We will also walk you through the basics of the look-back measurement method. By the end, you’ll understand how the monthly method differs from the look-back method, why accurate counts of full-time employees are crucial for avoiding penalties, and when to use this method.
What is the monthly measurement method?
This method determines each employee’s status by counting employees’ hours of service at the end of each calendar month. Rather than taking averages over multiple months, this method looks at a month worked individually to determine employee status.
To qualify as full-time, an employee must work:
- 30+ hours per week or
- 130+ hours per month
It's a good method to use if the majority of your workforce is employed as full-time help so that only a couple of workers need to be measured to be ACA compliant.
The weekly rule
The monthly method involves less stringent rules than the look-back method, but the weekly rule is a helpful tool to ensure each month evaluated is as accurate as possible.
The weekly rule is an optional method, but because some months have four calendar weeks and others span five, there is a difference in the number of hours required to reach full-time eligibility. Employees are eligible for full-time status in the following situations:
- 120+ hours worked in a four-week calendar month
- 150+ hours worked in a five-week calendar month
Whether the ALE uses this rule or not, the ACA requires that the entire calendar month be used to determine employee’s eligibility.
Later, we’ll present an example of this kind of rule and how it applies to the monthly measurement method.
Compared to the look-back method
The look-back method is the preferred way to measure employee status for companies with employees working variable hours each month. This method requires a measurement period between 3-12 months, where the employer can average an employee’s hours of service. If they meet one of the following averages during this measurement period, the employer is required to offer health insurance coverage:
- 30+ hours per week, or
- 130+ hours per month
Three periods involved in the look-back method
There are three steps, or periods of time, involved in the look-back method:
- Measurement period
- Administrative period
- Stability period
The measurement method is the period of time that an employer uses to observe an employee’s hours of service per week and month. It must be a period of several months that fall within this timeframe:
- No fewer than 3 months
- No longer than 12 months
The employer can decide how long they want to measure the employee’s hours of service. After the hours of service are counted and averaged, and employees’ statuses are determined, an administrative period is taken to offer the healthcare coverage and provide necessary materials to those employees.
A key difference between the look-back measurement method and the monthly measurement method is that once the employee's status is determined in the measurement period of the look-back method, that status can be held throughout the stability period, which we will detail below.
In this period, employers determine which employees qualify for coverage. Then, they offer the materials (such as coverage options, enrollment information) necessary for the employees to get started with their health plans.
The administrative period is an optional period for employers, so those offering coverage to their employees can do so right as eligibility is determined. However, this period may not take more than 90 days.
The stability period is the length of time after the employees have been covered by their health plans through the employer during which the employee status is fixed. If an employee qualifies as full-time during the measurement period, their full-time status remains through this period.
The stability period must be:
- No fewer than 6 months
- No less time than the corresponding measurement period
- No more than 12 months
Look-back method for salaried employees
Since salaried employees are not paid hourly, their hours of service to determine employee status can be tracked by using one of three methods:
- The same method as hourly employees
- Days-worked equivalency method
- Weeks-worked equivalency method
Look-back method vs. monthly method
Once the average work hours are determined in the look-back method, those who qualify as full-time must be offered options for health insurance coverage by their employer, as stated in the ACA.
Overall, the look-back method is better for employers with a workforce that fluctuates weekly, such as seasonal employment. These measurements and periods are used to get a good idea of how many hours are being spent at work. The monthly method, then, is good for more predictable work environments.
Example of monthly method
In this example, the employer uses the weekly rule snf the monthly measurement method to determine the full-time status of their employee.
Employer A decides to observe Employee B’s hours from the month of January, which is a five week month on the calendar. To count their employee’s hours fairly, they must consider the weekly rule: Employer B should work 150+ hours in this month to qualify for full-time employee status, but they only worked 130. According to the monthly method with the weekly rule, they did not work enough hours in a month to qualify for full-time status and benefits.
Avoid penalties, offer coverage
The monthly measurement method is a simple tool to determine the status of ALEs employees. If the employer chooses not to use the look-back method, they must use this way to remain compliant with the shared responsibility provisions in the Patient Protection and Affordable Care Act. In doing so, the employer can avoid penalty fines from the IRS for filing their employees incorrectly.
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