What Happens to ACA Eligibility When an Employee’s Hours Change?

An employee who has been working full-time moves to a part-time schedule. Should health coverage end when the employee’s hours decrease?

For employers subject to the Affordable Care Act (ACA) employer shared responsibility requirements, the answer may be no. An employee’s current work schedule does not always determine the employee’s current ACA full-time status.

Start With the Employer’s Measurement Method

For ACA purposes, a full-time employee generally is an employee who averages at least 30 hours of service per week or 130 hours of service per month. Employers may use one of two methods to determine full-time status for purposes of the employer shared responsibility provisions: the monthly measurement method or the look-back measurement method.

Under the monthly measurement method, an employer determines an employee’s full-time status each calendar month based on the employee’s hours of service for that month.

The look-back measurement method works differently. An employer measures an employee’s hours during a prior measurement period and uses those hours to determine the employee’s ACA full-time status during a subsequent stability period.

A Reduction in Hours May Not Immediately Change ACA Status

This distinction becomes particularly important when an employee moves from a full-time to a part-time schedule.

Under the look-back measurement method, an employee who averaged enough hours during the applicable measurement period to be considered full-time generally retains that ACA full-time status throughout the associated stability period. A subsequent reduction in scheduled hours does not necessarily cause the employee to immediately lose full-time status for ACA purposes. Instead, the reduced hours generally affect the employee’s status during a later stability period.

For example, assume an employer uses a 12-month look-back measurement period followed by a 12-month stability period. An employee averages 35 hours per week during the measurement period and therefore qualifies as full-time for the following stability period. Three months into that stability period, the employee’s regular schedule decreases to 20 hours per week.

The employer should not automatically assume that the employee immediately becomes part-time for ACA purposes. The employee may continue to be treated as full-time for the remainder of the applicable stability period even though the employee is currently working only 20 hours per week.

There Are Exceptions

The ACA regulations contain special rules that may apply when an employee moves from full-time to part-time status. Under certain circumstances, an employer using the look-back measurement method may be permitted to begin applying the monthly measurement method after the employee has averaged fewer than 30 hours of service per week for three full calendar months following the change.

Specific requirements must be satisfied before this rule can be used, so employers should not treat every reduction in hours as an automatic loss of ACA full-time status.

What If an Employee Moves From Part-Time to Full-Time?

The reverse situation also deserves attention. An employee who was hired as part-time or variable-hour may later move into a position where the employee is expected to work full-time.

Employers using the look-back measurement method should not simply wait for the employee’s current measurement period to end. Special ACA rules address certain employees who experience a change in employment status during an initial measurement period and become reasonably expected to work full-time. Depending on the circumstances, the employer may need to offer coverage before the employee completes the original measurement and stability cycle.

ACA Status and Plan Eligibility Are Not Necessarily the Same

Employers should also distinguish between ACA full-time status and eligibility under the employer’s health plan.

The ACA measurement rules are used to determine full-time employee status for purposes of the employer shared responsibility provisions. They do not prevent an employer from offering coverage more broadly. For example, an employer’s plan may provide coverage to employees working fewer than 30 hours per week.

As a result, HR should consider both the employer’s ACA measurement methodology and the eligibility provisions of the applicable health plan before changing an employee’s coverage.

A Payroll Classification Should Not Automatically Drive Benefits

Changes in an employee’s scheduled hours are common. Employees move between positions, reduce their schedules, increase their hours or move between full-time and part-time classifications.

The mistake is assuming that a change in an HR or payroll classification automatically produces the same change in ACA status.

Before changing health coverage because an employee’s hours have increased or decreased, employers should determine which ACA measurement method applies, where the employee is in the applicable measurement and stability periods, whether a special change-in-status rule applies, and what the employer’s plan eligibility provisions require.

Coordinating HR, payroll and benefits administration when an employee’s hours change can help prevent premature terminations of coverage, missed offers of coverage and inaccurate ACA reporting.