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.
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
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.
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?
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
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.