How to Handle Special Leave Under the Lookback Method
Most Applicable Large Employers (ALEs) have worked out the major kinks in the ACA reporting process. Now, many employers are sorting out how to determine the full-time status of their ongoing employees. Certain types of leave can create a lot of confusion for ALEs when calculating hours of service, especially under the lookback measurement method.
The lookback measurement method enables employers to determine a full-time employee’s status by calculating hours of service during a measurement period, which is followed by a stability period. A leave of absence will normally not impact whether the employee should be offered coverage during the remainder of that stability period, but it does impact the calculation of hours of service for the contemporaneous measurement period.
Generally, an employee does not have to be credited with hours of service for any period in which they are on an unpaid leave. However, a special rule applies for employees who are on FMLA leave, USERRA leave or jury duty (referred to as “special leaves”). During periods of special leave, an ALE has two options for crediting service. The ALE can disregard the period of special leave and only measure the hours of service during the period prior and after the leave. Alternatively, the ALE can credit the employee with the average hours worked, prior to the leave, over the period of the special leave.
For example, Bob Jones is considered a full-time employee for the 2016 stability period. Bob is on an unpaid FMLA leave for 4 weeks beginning March 1, 2016. This unpaid leave does not impact Bob’s status as a full-time employee in 2016. When the ALE determines whether Bob is a full-time employee for the following stability period (2017), the ALE takes Bob’s total hours during the measurement period and divides them by 48 weeks (52 weeks minus the 4 week leave). If Bob averaged enough hours to be considered full-time during the 48 week period, the ALE must offer Bob coverage for the subsequent stability period to avoid the potential of pay or play penalties.