Second Opinions

Second Opinions - Applying the Employer Mandate Look-Back Rules

Experts from Groom Law Group answer questions about new IRS guidance about applying the Patient Protection and Affordable Care Act (ACA) employer mandate look-back rules.

By PS | February 24, 2015
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Last fall, the Internal Revenue Service (IRS) released guidance (Notice 2014-49) that addresses several issues not addressed in the final employer mandate regulations regarding the application of the look-back rules in situations in which the measurement method or period changes.

The final employer mandate regulations describe two measurement methods that applicable large employers (ALEs) can use to determine whether an individual is a full-time employee: (1) the look-back measurement method; or (2) the monthly measurement method.

Under the final regulations, an employer generally must apply the same measurement method and, if using the look-back method, the same measurement period, to all employees in the same category (e.g., salary vs. hourly). The final regulations include rules on an employee transferring from a category for which one measurement method applies to a category under which the other method applies, but do not address the rules that apply if an employer changes the measurement method or period for a category of employees. 

The Notice describes proposed approaches for applying the look-back rules when an employee transfers from one position to another with an employer and when an employer changes measurement methods or periods for a category of employees. It also requests comments on the potential application of these approaches in the case of corporate transactions such as mergers and acquisitions.  Below we address frequently asked questions related to the Notice. 

How do the look-back rules apply to employees who transfer positions or between employers? 

The Notice addresses situations in which an employee experiences a change in measurement method or period as a result of a transfer between ALE members or between employee categories. Following the transfer, the employer must take into account the hours of service earned in the first position either by counting the hours using the counting method applied to the employee in the first position or recalculating the hours of service earned in the first position using the hours of service counting method applied to the employee in the second position. 

The Notice proposes an approach to apply the look-back measurement method after the change. In general, the application of the look-back rules vary depending upon whether the employee was in a stability period or administrative period applicable to the first position as of the date of the transfer. If the employee was in a stability or administrative period as of the transfer date, the employee’s full-time or part-time status for the first position remains in effect until the end of that stability period. Then, at the end of the applicable stability period, the employee assumes the full-time or part-time status that employee would have had under the look-back method applicable to the second position (and including hours from the first position). 

For employees not in a stability or administrative period as of the transfer date, the employee’s full-time or part-time status is determined solely under the look-back method applicable to the second position as of the date of transfer, including all hours of service in the first position. Otherwise, the general look-back rules, including the rules that apply to new, full-time employees, continue to apply.

 

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