September 30, 2014
Authored by: Serena Yee
Recently the IRS issued Notice 2014-49, offering guidance for situations in which the measurement period or method applicable to an employee changes.
Under the Affordable Care Act, as amended (“ACA”) an applicable large employer risks the imposition of a penalty tax under Code section 4980H in connection with a failure to offer full-time employees (and their dependents) minimum essential coverage under an eligible employer-sponsored plan that is both affordable and provides minimum value. This is sometimes called the “play or pay” penalty.
There are two methods an employer may use to identify full-time employees for purposes of Code section 4980H – the monthly method and the look-back method. Under the look-back method, employers average an employee’s hours of service during a predetermined period (i.e., the measurement period) to determine whether to treat the employee as a full-time employee for the period that follows (i.e., the stability period). Employers have the flexibility to set their own measurement and stability periods, subject to certain prescribed parameters. Each employer within a control group may use different measurement methods or may establish measurement periods that differ in duration or that start on different dates. Employers may also establish different periods for specified categories of employees (e.g., collectively and non-collectively bargained employees, employees covered by different collective bargaining agreements, salaried and hourly employees and employees with primary places of employment in different states).
In the Notice the IRS offers guidance on administering the applicable measurement method in the