How to Determine Full-Time Employee Status Using the Look-Back Measurement Method and Evaluate Pay or Play Penalties
Author: Brian Muse
An applicable large employer (ALE) may be subject to an employer shared responsibility payment (also known as the pay or play penalty) if it does not offer minimum essential coverage (MEC) to its full-time employees and their dependent children up to age 26 or if the coverage offered to full-time employees does not meet the minimum value and affordability requirements under the Affordable Care Act (ACA). For this purpose, a full-time employee is an employee who works, on average, at least 30 hours per week or 130 hours in a calendar month. An employer must include actual hours worked and periods of time for which an employee is paid, such as vacation, illness, holiday, short- or long-term disability, jury duty, temporary leave of absence or military duty, in the hours of service calculation.
The determination as to whether an employee is full-time is done on a monthly basis. While an employer may track an employee's hours of service on a monthly basis, the Internal Revenue Service (IRS) also provides a safe harbor look-back measurement method that an employer may use to determine which employees are considered full-time employees. Under this approach, an employer uses hours of service credited during a measurement period (also known as a look-back period) to determine an employee's full-time (or part-time) status and then uses that determination prospectively for up to 12 months.
Final regulations clarify whether certain types of employees are considered full-time for the purposes of the employer shared responsibility requirements.
- Volunteers: Hours worked as a bona fide volunteer for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, are not counted in determining full-time status.
- Educational employees: Teachers and other educational employees are not considered part-time just because their school is closed or operates on a limited schedule during the summer.
- Seasonal employees: Workers in positions for which the customary annual employment is six months or fewer are generally not considered full-time employees.
- Students in work-study programs: Hours worked by a student under a federal- or state-sponsored work-study program are not counted in determining full-time status.
- Adjunct faculty members: Employers must use a method of crediting adjunct faculty members' hours of service that is reasonable for the circumstances and consistent with the employer shared responsibility requirements. The final regulations expressly allow employers to credit adjunct faculty members with two and one-quarter hours of service per week for each hour of teaching or classroom time.
The following steps can help an employer determine full-time employee status by using the look-back measurement method and addresses how to determine whether an employee is properly categorized as full-time or part-time.