The ACA and Leaves of Absence for Full Time Status

When an employee takes a leave of absence, it may be tempting to remove the employee from normal benefits eligibility monitoring until the employee returns. For employers subject to the Affordable Care Act (ACA) employer shared responsibility provisions, that approach can create problems.

An employee’s ACA status does not necessarily change simply because the employee stops actively working. Employers need to understand how different types of leave affect hours of service and how their chosen ACA measurement method applies during and after a leave.

Paid Leave Can Count as Hours of Service

For ACA purposes, a full-time employee is generally an employee who averages at least 30 hours of service per week or 130 hours of service per month. Importantly, “hours of service” include more than hours actually worked.

Hours for which an employee is paid, or entitled to payment, even though no work is performed generally count as hours of service when the absence is due to vacation, holiday, illness, incapacity or disability, layoff, jury duty, military duty, or a leave of absence.

As a result, an employee on paid leave may continue accumulating ACA hours even though the employee is not actively working. Employers that look only at hours physically worked can therefore undercount an employee’s hours and potentially misclassify the employee’s ACA status.

What About Unpaid Leave?

Unpaid leave requires a different analysis. An employee generally does not receive hours of service simply because the employee remains employed while taking an unpaid leave. However, that does not mean the employee should automatically be treated as part-time or removed from ACA monitoring.

The result can depend significantly on whether the employer uses the monthly measurement method or the look-back measurement method.

Under the monthly measurement method, an employer generally determines an employee’s full-time status separately each month based on the employee’s hours of service for that month. A period of unpaid leave can therefore affect whether the employee reaches the 130-hour monthly threshold.

Under the look-back measurement method, the analysis is different. An employee’s full-time status during a stability period is generally based on the employee’s hours during an earlier measurement period. An employee who was determined to be full-time for a stability period generally does not simply lose that ACA status because the employee subsequently has fewer hours during that stability period.

There are also special ACA rules that can apply to certain unpaid leaves and periods during which no hours are credited, so employers should review the circumstances rather than applying a blanket rule to every unpaid absence.

Don’t Let Employees on Leave Disappear From ACA Tracking

One of the larger administrative risks is not necessarily misunderstanding the leave rules. It is losing track of the employee altogether.

HR, payroll, leave administration, and benefits systems may treat the same employee differently. For example, payroll may show no current hours, the HR system may show the employee as “on leave,” and the benefits system may continue the employee’s medical coverage. If the employer’s ACA process does not account for those differences, the employee’s hours, coverage offer, or full-time status may be reported incorrectly.

Employers should have a process for identifying employees who begin and return from leave and determining how the absence affects ACA hours and eligibility. The process should also capture the correct leave dates, paid versus unpaid status, return-to-work date, and any change in employment status.

Returning From Leave Can Create Additional Questions

An employee returning from an extended absence should not automatically be treated as a brand-new employee for ACA purposes. Depending on the length and circumstances of the break in service, ACA rules may require the employer to treat the returning individual as a continuing employee rather than a new hire.

That distinction can affect the employee’s measurement and stability periods and when coverage must be offered. Employers should therefore coordinate their leave and rehire procedures with their ACA administration rather than simply restarting the employee’s eligibility process upon return.

Coordination Matters

Leave administration should be part of an employer’s overall ACA compliance process. Employers should make sure that employees on leave remain visible in ACA monitoring and that HR, payroll, benefits, and leave information are coordinated.

A leave of absence may temporarily change whether an employee is working, but it does not necessarily erase the employee’s ACA history or full-time status. Keeping accurate information throughout the leave can help employers properly administer coverage and produce more accurate ACA reporting at year-end.