Similar to the method employed for ongoing employees, the look-back measurement method for new variable hour, seasonal and part-time employees utilizes a stability period for when coverage may need to be provided, depending on the employee’s hours of service during the initial measurement period. An administrative period may also be added to make eligibility determinations, notify and enroll employees.
An employer has discretion in determining when the initial measurement, stability and administrative periods will start and end, subject to various IRS parameters. However, the stability period for these employees must be the same length as the stability period for ongoing employees.
Once a new variable hour, seasonal employee or part-time employee has been employed for an entire standard measurement period, the employee must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same conditions as other ongoing employees.
This transition from initial to ongoing employee status under PPACA was summarized well by the law firm of Trucker & Huss. If you have the time, the entire publication is worth reading. It is excerpted below:
Transition from Newly-Hired Employee to Ongoing Employee
Notice 2012-58 also provides guidance regarding the rules to be followed when transitioning an employee from his or her "initial measurement period" to the plan’s ’standard measurement period." The measurement rules for a newly-hired employee who becomes an ongoing employee are similar to the measurement rules used for qualified retirement plans. There will be an overlap in the year that contains the employee’s first anniversary from his or her date of hire. When a new employee has been employed for an initial measurement period, the employer must retest the employee’s full-time status again during the standard measurement period used for ongoing employees. If the employer determines that an employee has full-time employee status during an initial measurement period or standard measurement period, the employee must be treated as a full-time employee for the entire associated stability period. This rule is illustrated in the example below.And this is from Page 10 in IRS Notice 2012-58:
Example: Employer A has a 12 month standard measurement period running from October 15th and ending the following October 14th for coverage to become effective January 1st of the subsequent year. Employer A’s initial measurement period is the 12 month period starting on the date of a variable hour employee’s date of hire. Nate is a variable hour employee who is hired on May 10, 2014. If Nate averages at least thirty hours per week during the 12 month initial measurement period (i.e., May 10, 2014, through May 9, 2015), Employer A must offer Nate coverage starting July 1, 2015. If Nate does not average thirty hours per week during his 12 month initial measurement period (i.e., May 10, 2014, through May 9, 2015), Employer A does not have to offer him coverage. However, Employer A must re-test Nate’s status during the next "standard measurement period" (i.e., October 15, 2014, through October 14, 2015). If Nate averages 30 hours per week during this standard measurement period, he must be offered coverage no later than January 1, 2016.
An employee determined to be a full-time employee during an initial measurement period or standard measurement period must be treated as a full-time employee for the entire associated stability period. This is the case even if the employee is determined to be a full-time employee during the initial measurement period but determined not to be a full-time employee during the overlapping or immediately following standard measurement period. In that case, the employer may treat the employee as not a full-time employee only after the end of the stability period associated with the initial measurement period. Thereafter, the employee’s full-time status would be determined in the same manner as that of the employer’s other ongoing employees.Below is a simple visual sample of what your standard measurement periods might look like if you had a 1/1 renewal and selected 12-months. The vast majority of employers are electing to use 12-months to gain the longest period over which to average hours and to avoid having to repeat the ongoing calculation more than once a year. (Click on image for a larger version):
In contrast, if the employee is determined not to be a full-time employee during the initial measurement period, but is determined to be a full-time employee during the overlapping or immediately following standard measurement period, the employee must be treated as a full-time employee for the entire stability period that corresponds to that standard measurement period (even if that stability period begins before the end of the stability period associated with the initial measurement period). Thereafter, the employee’s full-time status would be determined in the same manner as that of the employer’s other ongoing employees.