Counting Hours for Purposes of Pay or Play

Lyndsey Barnett

Many employers are nearing the end of their first look-back measurement period for purposes of determining full-time employment status for health plan coverage. Before you finalize your counts on who is a full-time employee, it is important to make sure that you have taken all hours into account. The pay or play rules require that an employee be given credit for all hours in which they are paid or entitled to be paid. These hours include ones where the employee receives payment due to vacation, holiday, illness, incapacity (including disability pay), layoff duty, military duty or paid leave of absence.   There has been much speculation on whether employers must give credit for hours in which an employee receives long-term disability benefits.  While the IRS has informally indicated that it intends to issue further guidance on point, their current position seems to be that you must count long-term disability pay (even if you have a fully-insured LTD plan) as long as the individual remains an employee.   

The pay or play regulations also have a rule for special unpaid leaves of absence, including FMLA leaves, military leaves and jury duty. For purposes of applying the look-back measurement method, employers must give the employee credit for the hours the employee would have worked during the special unpaid leave period by either determining the employee’s average hours after excluding the special unpaid leave period or by crediting the employee with hours of service for any special unpaid leave period at a rate equal to the average weekly rate at which the employee was credited with hours of services during the portion of the measurement period that is not part of the special unpaid leave period. If you haven’t already taken these special leaves into account, you need to do so before you finalize your determination on who is a full-time employee.