Employers who are preparing for health care reform compliance have two options for counting their employees’ hours for determining eligibility for health coverage. Employees who work 30 or more hours per week (130 or more hours for month) are considered full-time equivalent employees and must be offered affordable health coverage that meets minimum value.
The IRS approves two different methods for counting hours of service.
- Under the Monthly Measurement Method, an employer determines each employee’s status as a full-time employee for a calendar month by counting the employee’s actual hours of service for that month. This method is useful for employees whose hours do not fluctuate throughout the year.
- Under the Lookback Measurement Method, an employee counts the employee’s hours of service in one period (the measurement period) to determine the employee’s full-time status for a future period (the stability period). This method is useful for employees who are variable hour and whose hours of service fluctuate throughout the year.
Employers with a variable hour workforce will likely use the Lookback Method for determining if an employee should be considered a full-time equivalent employee and offered health coverage. Using this method allows an employer to treat an employee consistently for a set period and not worry about offering and rescinding coverage throughout the plan year.
An hour of service is each hour an employee is paid or entitled to payment. For hourly employees, hours are counted by records of actual hours worked. For non-hourly employees, hours may be calculated using one of the following options:
- Using actual hours worked for which the employee is entitled to payment;
- Using a days-worked equivalent where each day is equal to 8 hours of service; or
- Using a weeks-worked equivalent where each week is equal to 40 hours of service.
An employer is not required to use the same measurement period for all employees. The employer may apply different measurement methods for different reasonable classifications of employees.
