Understanding Variable Hour Employees

What are variable hour employees?

A variable hour employee is an individual who, upon their date of hire, the employer cannot reasonably determine whether they will be working on average at least 30 hours per week.  In this case, their hours would be measured monthly to determine if they should be deemed full-time and eligible for benefits.  It’s important to only classify an employee as variable hour if their hours are unknown or highly likely to change.  If an employee is expected to work full-time hours, they should be classified as such and offered benefits after a waiting period of no longer than 90 days.  There are two measurement methods for variable hour employees: the Look-Back Measurement Method, and the Monthly Measurement Method.

What is the Look-Back Measurement Method?

This method uses the following periods to measure an employee’s hours over a duration of time to determine their eligibility.

• Measurement Period:  A measurement period must be between 3 and 12 months.  During this time, the employee’s hours are tracked then averaged to determine whether the employee worked at least 30 hours per week, or 130 hours per month, to be deemed full-time.
• Administrative Period:  The administrative period is optional and must be between 0 and 90 days.  However, the combined initial measurement and administrative periods cannot exceed 13 months.  This period is used to perform administrative tasks such as calculating hours worked, determining eligibility, and offering coverage to those deemed eligible.
• Stability Period:  The stability period must be between 6 and 12 months and must be at least the duration of the measurement period.  During this time, an employee’s status of full-time or part-time determined from their measurement period will apply.  If the employee is deemed full-time from their measurement period, they should be offered benefits for the duration of their stability period.  If the employee is instead deemed part-time, they would be ineligible for benefits for the duration of their stability period.  Their status of either full-time or part-time is locked in for the duration of the stability period, regardless of if their hours change during this time.

Standard measurement, administrative, and stability periods will occur on set dates each year, typically with the first stability period lining up with the employer’s plan year start date for benefits.  Each measurement period will immediately proceed the previous measurement period so that an employee’s hours are always being tracked.  If the durations of the measurement and stability periods are the same, each stability period will also immediately proceed the previous stability period.  If the duration of the stability period is longer than the duration of the measurement period, the stability periods will overlap, and the employee should be offered coverage during the months that overlap if they were deemed full-time for either of the stability periods.

New employees will enter an initial measurement period that will either begin on their date of hire or on the first day of the preceding month. They will then begin their first standard measurement period that begins after their date of hire.  Their initial measurement, administrative, and stability periods will typically overlap with their first standard measurement, administrative, and stability periods.  During the months that overlap within the measurement periods, any hours worked would be counted for each measurement period respectively.

What is the Monthly Measurement Method?

This method tracks an employee’s hours on a monthly basis.  If an employee works at least 130 hours during the calendar month, they would be deemed full-time and would be eligible for benefits that month.  If the employee instead works under 130 hours during the calendar month, they would be deemed part-time and would not be eligible for benefits that month.  Employers could instead use the optional Weekly Rule to calculate hours of service, where hours are counted for the week instead of the month.  For months calculated using four week-long periods, an employee with at least 120 hours of service is considered a full-time employee.  For calendar months calculated using five week-long periods, an employee with at least 150 hours of service is considered a full-time employee.

Which Measurement Method should I use?

The default method that is automatically elected with variable hour employees is the Monthly Measurement Method.  If an employer does not have a measurement period listed in their plan documents, they should use the Monthly Measurement Method.  If they would like to use the Look-Back Measurement Method instead, they would need to state this as their measurement period within their plan documents first.

The Look-Back Measurement Method is useful for employers with variable hour employees whose hours are highly volatile and subject to change each week.  Although it will take longer for employees to become eligible for benefits using this method, it will provide exact calculations of who should be eligible and when.

The Monthly Measurement Method is useful for employers with variable hour employees whose hours are relatively stable within a month but vary between months.  This method could provide employees with benefits sooner than using the Look-Back Measurement Method but is less exact since it will track hours for the month to determine whether the employee should be eligible for benefits that month.  Because of this, the Monthly Measurement Method is at a greater risk of falling out of compliance and can be more of an administrative burden, so it is typically not recommended over the Look-Back Measurement Method.

When can variable hour employees adjust their benefit elections?

In general, benefit elections can only be modified either during open enrollment or due to a qualifying event.  The same rules will apply for variable hour employees.  For all variable hour employees who are deemed full-time and eligible for benefits during open enrollment, they should be allowed to adjust their benefit elections with open enrollment.  Whenever they are deemed eligible for benefits for the first time, they should also be allowed to select their benefit elections for the remainder of the plan year, even if their eligibility begins after open enrollment.  Similarly, if an employee loses their eligibility, then regains it later within the same plan year, this would count as a qualifying event for them to select their benefit elections instead of simply resuming their prior elections from earlier in the year.

However, if the employer has multiple stability periods within the same plan year, a variable hour employee who simply maintains their eligibility from one stability period to the next would not qualify to adjust their elections at the start of the new stability period.  In other words, the beginning of a new stability period on its own would not count as a qualifying event within a plan year.  For example, if a variable hour employee is on a calendar year plan and deemed full-time for a stability period from January 1^st to June 30^th, then deemed full-time again for a stability period from July 1^st to December 31^st, their elections would simply continue to the end of the year, and they would not be able to adjust their elections for July 1^st.

How are variable hour employees reported under the Affordable Care Act?

Any variable hour employees of an applicable large employer (ALE) who are deemed full-time and thus eligible for benefits at any point during the tax year should receive a 1095 form for that year.  For months that they were in an initial measurement period or initial administrative period, they should be indicated to be in a waiting period for that month.  Any months that they were eligible for coverage, they should have the appropriate codes for either enrolling in coverage or waiving coverage unless they were not offered coverage.  Any months that they were deemed part-time, they should be indicated to be part-time for those months.

If you need assistance with tracking the eligibility of your variable hour employees to complete your ACA Reporting, CXC Solutions is here to assist with all your compliance needs.  For more information, please contact us at info@cxcnetwork.com.