Ongoing vs New Employees
Employers may use an IRS-approved safe harbor to determine whether ongoing employees and new and variable hour employees are FTEs to whom they must offer coverage. The safe harbor uses the terms “measurement period,” “administrative period” and “stability period.” These terms are defined below.
Employers can choose a measurement period (a.k.a. look-back period) of three to 12 consecutive months during which the average weekly or monthly work hours of the employee are tracked and measured. There are two types of measurement periods: initial and standard. The initial measurement period is used for new employees. (I swapped these positions) The standard measurement period is used for ongoing employees. If an employee averages 30 or more hours per week (or 130 hours per month) during the measurement period, they then go into the following administrative period.
Administrative Period (Optional)
The administrative period is a time period between the measurement and stability periods. If an employee averages 30 hours or more per week (or 130 hours per month) during the measurement period, then that employee becomes eligible for coverage (i.e., is treated as an FTE) during a subsequent coverage period, called a “stability” period.
During this the administrative period, the employer notifies eligible employees and provides an opportunity for them to elect coverage which would be in effect during the following stability period. The administrative period cannot create a gap in coverage. It must overlap with the prior stability period for ongoing FTEs until the new stability period begins.
A period subsequent to the measurement (and administrative) periods that locks in an employee’s status either as a full-time employee or not a full-time employee and guarantees that the employee is eligible or not eligible for coverage, depending on the determination made from the measurement period (and during the administrative period, if used).
The stability period begins at the end of the measurement period and any administrative period, if the employer elects to have one, and is the longer of six consecutive calendar months or the length of the standard measurement period.
For new employees, the measurement periods (called “initial” measurement periods) become slightly more complicated because the dates of the initial measurement periods are not set dates.
Rather, they may begin on any date between the new employee’s hire date and the first of the month thereafter. The table below illustrates the general parameters for initial measurement period for new employees:
Each new employee will have their own initial measurement period, resulting in many different initial measurement periods. Employers could, however, group together new employees hired during the same month and begin their measurement periods together on the first of the month thereafter.
As new employees become ongoing employees, they eventually transition into the standard measurement and stability periods for ongoing employees. The chart below outlines the interplay between 12-month initial and standard periods.
As outlined in the above chart, a new employee is measured both during the 12-month initial measurement period (which determines FTE status for the subsequent 12-month initial stability period), and during the first standard measurement period beginning after his or her hire date (i.e., 12-month Standard Measurement Period B, which determines FTE status for 12-month Standard Stability Period B). Eventually the new employee becomes an ongoing employee and is measured exclusively through the standard periods in place for ongoing employees.