Section 4980H imposes an excise tax on employers with 50 or more full-time or full-time equivalent employees who do not offer health care coverage to those employees under the Affordable Care Act (ACA), or who offer coverage that does not satisfy minimum value and affordability requirements.

A full-time employee is defined as an employee who works an average of 30 or more hours per week. An employer may determine an employee's full-time status on a current month-by-month basis, or may use a determination method known as the "look-back measurement method." The look-back method involves using an employee's average hours of service per week during a prior period to determine if an employee is treated as a full-time employee during a subsequent period. The prior measurement period is known as the "standard measurement period," and the subsequent period is known as the "stability period."

Notice 2014-49, issued by the IRS on Sept. 18, describes a proposed approach to applying the look-back measurement method in situations in which the standard measurement period applicable to an employee changes. A change in the standard measurement period may occur under a number of circumstances, such as:

  • An employee transfers from one related employer to another, and the employers use different standard measurement periods.
  • An employee transfers from a position to which one standard measurement period applies to a position to which a different standard measurement period applies.
  • An employer modifies the standard measurement period applicable to a position.
  • Employers are involved in a corporate transaction in which the employers use different standard measurement periods.

The notice describes how to address these situations. In general, if an employee has been employed for a full standard measurement period at the time of the changes described above, and thus has a status as either a full-time employee or non-full-time employee for the stability period associated with that measurement period, he or she retains the status through the end of the associated stability period.

For an employee who has not completed a standard measurement period, and therefore is not yet in a stability period at the time of the change, the employee's status is determined using the measurement period applicable after the change but including hours of service prior to the change.

Employers may rely on the approach described in the notice to determine an employee's status as a full-time employee until further guidance is issued, and in any case, through the end of calendar year 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.