New guidance from the IRS proposes new approaches to the application of the look-back measurement method, which employers use to determine if an employee is full-time or part-time for purposes of the employer mandate.
Notice 2014-49 covers situations such as when an employee transfers from a position (such as hourly) using one measurement period to a position (such as salaried) that uses a different measurement period. It also may happen when variable hour employees move from one position to another that has a measurement period with a different start date. It can happen if an employee moves from one subsidiary to another under the same ALE. The situation also may arise when the applicable large employer changes the measurement period applicable to a position.
The approach varies depending on whether the transferring employee is in a measurement, stability, or administrative period.
First job’s stability period runs to completion
If an employee is in a stability period, meaning his or her full or part-time status has been determined based on a full run-out of the measurement method used in the first position, then that status remains in effect until the end of that stability period. The full or part-time status may carry over the worker’s new start-date and the first day of the second position’s measurement period.
If an employee in a (part-time) first position had a Jan. 1 until Dec. 31 stability period, and he or she moves to a full time position on Aug. 15, he or she will remain part time until Dec 31. The next Jan 1, his or her status will be assessed using the second position’s measurement period, which may start on a day other than Jan. 1 — July 1, for example. That may mean hours from when he or she was at the previous part-time position are averaged into the second measurement period.
If a worker’s position changes while he or she is still in a measurement period (not yet in a stability period), the ALE will credit the hours already worked to the measurement period of the second position. Other examples covered in the guidance include:
- A variable-hour employee in the first job’s measurement period transfers to position in which he or she has completed the second job’s measurement period.
- A variable-hour employee in initial measurement period transfers to position to a job and has not completed that job’s measurement period either.
- A variable-hour employee in his or her initial measurement period transfers to new position and has a change in employment status.
- An employee changes positions during an administrative period.
Identifying full-time employees is important because a full-time employee’s receipt of subsidized coverage on an exchange is a factor that can trigger an employer penalty.
This guidance was anticipated on Feb. 12, 2014 in the final employer pay-or-play rules (79 Fed. Reg. 8544) implementing Section 4980 of the tax Code. The agencies are accepting comments on the proposal. Taxpayers may rely on the notice until further guidance is issued, and through the end of the 2016 calendar year.