Measuring Hours of Service: Why and How

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Now that the final employer shared responsibility regulations have been released, employers of 100 or more should begin preparing for January 1, 2015.  One facet of this preparation is whether or not to utilize measurement periods and how they should be implemented.  Measurement periods help an employer track employees’ hours of service.  If an employee averages 30 or more hours of service per week they must be offered benefits.

Variable hour employees pose a risk to an employer because their schedules make it difficult to predict if they must be offered benefits.  This uncertainty could expose an employer to penalties.  Utilizing measurement periods allows an employer to track these employees and ensure coverage is offered.  To clarify, an applicable large employer is not required to implement measurement periods.  An employer with a stable full-time workforce may not need to track hours of service to ensure coverage is offered because all the workforce is full-time, benefit eligible, and offered coverage; however, due to the penalties should an employer make a mistake, most will implement some sort of measurement period.  Documentation is key to justify benefit eligibility if an employer is audited, the penalties for noncompliance are high.

Hours of service are measured by choosing a measurement period length, a stability period length, and an administrative period length.  An employee deemed benefit eligible during the measurement period must be offered benefits during the entire stability period.  When selecting a measurement period an employer should balance administrative burden with the importance of accurately accounting for employees’ hours of service.  For example, a 12 month measurement period requires more administration but allows an employer to better control eligibility via scheduling.  Contrarily, 6 month measurement period  accurately accounts for variation in hours.  An employer could choose  to begin the stability period at health insurance open enrollment each year to reduce administration.

In sum, an employer should look at the realities and strategies of administering benefits when choosing a measurement and stability period to ensure a smooth transition.