The ACA Hour Counting Rules – State & Local Law

The ACA Hour Counting Rules: Measurement Methods, and Effect of State & Local Paid Leave Laws

This paper highlights a few issues employers could overlook when counting hours of service under the ACA.  For a detailed review of the rules employers must follow when counting an employee’s hours of service under the ACA see The Affordable Care Act Creates a New High Stakes Game of Counting Hours and Days publication.
 
The issues discussed in this paper could have a large impact on variable hour employees.  A variable hour employee is an employee if, based on the facts and circumstances at the employee’s start date, the employer cannot determine whether the employee is reasonably expected to accumulate 30 or more hours of service during the initial measurement period.  The issues discussed in this paper could also impact seasonal employees.  However, there has been little guidance released on seasonal employees so they are not discussed in the paper.
 
State and Local Law
 
There has been a growing trend of cities enacting laws that require employers to provide mandatory paid leave to their workforce.  The proposed employer shared responsibility regulations make it clear that hours of service include each hour an employee is paid or entitled to be paid.  Thus, an employer ignoring a State or local law that requires an employee to have paid time off could be understating an employee’s hours of service.  The ACA will not preempt State and local law that impacts calculating hours of service that is more cumbersome on employers than federal law.  Consequently, employers must be aware of the State and local laws that will impact how an employee’s hours of service accumulate.
 
Ignoring State or local law could lead to two issues.  First, an employer not factoring in a law that requires paid leave to certain employees could understate its number of full-time equivalent employees.  If the understatement is large enough, an employer could cross the applicable large employer threshold for ACA purposes (note this could occur to an employer with no variable hour employees).  This would make the employer subject to the Play or Pay Mandate which would be disastrous if the employer is not offering coverage that is affordable and provides minimum value to its full-time employees.  Second, an employer not factoring in a law that requires paid leave to certain employees could cause the employer to understate an employee’s hours of service.  This could cause certain employees to be reclassified as full-time employees under the ACA.  In the worst case scenario an employer who thought it was in compliance with the 95 percent rule could fail the test as a result of the additional full-time employees.
 
It is critical that employers accurately count an employee’s hours of service.  Employers who operate in multiple locations may have to abide by several laws that impact their workforce’s hours of service.  Employers should consult with local professionals to ensure compliance with State and local law.
 
No Requirement for Employers to Use the Look-Back Measurement Method
 
The look-back measurement method is a complicated test that requires employers to track each employee’s hours of service in measurement periods ranging from three to 12 months.  It is understandable some employers have no desire to undertake such a daunting task.  Fortunately, employers do not have to use the look-back measurement method. 
 
An employer electing not to use the look-back measurement method will have to track each employee’s hours of service on a monthly basis beginning in 2015.  Each employee accumulating 30 or more hours of service per week during any calendar month will be taken into account for the Play or Pay Mandate associated with the employer for that month.  Alternatively, as long as proper procedures are followed, an employer can elect to treat 130 hours of service in a calendar month as the monthly equivalent of averaging 30 hours of service per week in a given month. 
 
Employers not utilizing the look-back measurement method must be willing to pay the penalty associated with the Play or Pay Mandate or carefully track each employee’s hours of service to ensure compliance with the 95 percent rule.  If an employer’s hourly demand fluctuates from month-to-month, it would be wise to use the look-back measurement method.
 
Employers Using the Look-Back Measurement Method
 
Employers who are planning to use a 12 month look-back measurement method should already be tracking their workforce’s hours of service.  However, employers who have not begun tracking their workforce’s hours of service do not need to panic.  These employers can implement shorter measurement periods in 2014.  Then in subsequent years the employer can switch to a 12 month measurement period.  This strategy and the advantages of a 12 month measurement period are discussed extensively in The Forgotten Employees – How a Treasury Oversight Will Impact Employers Wishing to Utilize the Look-Back Measurement Method publication.  As that publication discusses, there is uncertainty as to whether employers limiting an entire segment of their workforce’s hours of service to less than 30 hours per week can use the look-back measurement method.  Unless that issue is resolved in future guidance, it remains a viable concern that could create future litigation. 
 
Changes Coming to the Look-Back Measurement Method?
 
Additionally, employers who have not begun to measure their workforce’s hours of service may be bailed out by the final employer shared responsibility regulations which should be released any day.  Part of the reason behind the delay in the employer mandate was to simplify the penalties associated with the Play or Pay Mandate.  This could mean changes to the look-back measurement method and/or transition relief for measuring an employee’s hours of service in 2014.Legal Consent

The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation.  Copyright © 2013 by Moulder Law. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.