How do we treat a new hire we expect to work full-time?
The short answer: measure month by month from the start date. If you offer coverage by the first day of the fourth full calendar month, you avoid the (a) payment for the first three full months.
The three things to know.
No Initial Period
A hire reasonably expected to average 30 hours or more is not eligible for the initial measurement period.
The Three-Month Rule
Coverage offered by the first day of the fourth full calendar month avoids the 95% offer test payment for the first three full months, when the employee is otherwise eligible.
Then the Ongoing Rules
After the first months the employee is treated under whichever method applies to their category.
Sources: 26 CFR § 54.4980H-3; 26 CFR § 54.4980H-4. General information, not legal advice.
A worked example.
A Posted Full-Time Role
A manufacturer hires a full-time machinist on August 18 into a role posted at 40 hours a week.
What the Rule Produces
The employer measures monthly from August 18. To use the three-month rule, coverage is offered by December 1, the first day of the fourth full calendar month, since September, October and November are the first three full months.
Four steps to apply it.
1. Classify at hire
Document the expectation.
2. Calendar the date
Mark the first day of the fourth full month.
3. Make the offer
Send enrollment materials.
4. Track hours
Monthly thereafter.
Where it goes wrong. Starting an initial measurement period for a role expected to be full-time.
The full answer.
The Reasonable Expectation Test
At the start date, ask whether you reasonably expect the person to average 30 hours or more. Posted hours, the offered schedule and comparable roles are the evidence.
What the Three-Month Rule Does
For the 95% offer test, an employer is not charged for a new full-time employee’s first three full calendar months if coverage is offered by the first day of the fourth month and the employee is otherwise eligible.
What It Does Not Do
The rule does not change the employee’s status, and it is not a license for a longer waiting period. It only addresses when an offer must be made to avoid the (a) payment.
After the First Months
Once the employee is on the books, the employer treats the person under its method, including a look-back stability period if one applies.
The questions that come up next.
What if the offer is late?
A payment can apply for the months without an offer. Check the amounts with your advisor.
Is a waiting period the same thing?
They are separate. Waiting periods have their own limit of 90 days.
What counts as a reasonable expectation?
The posted hours, offered schedule and comparable roles at the start date.
What if we offer sooner?
There is no problem with an earlier offer.
What if the employee declines?
Keep the waiver.
What if the offer is made late?
The first day of the fourth full month is the deadline. Confirm exact dates with counsel.
Does the employee have to enroll?
No. An offer is what counts, and waivers should be documented.
Do dependents need an offer?
Yes. The offer for a full-time employee must reach dependent children.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related pages on the look-back method.
What about rehires and employees on leave?
The short answer: after at least 13 consecutive weeks without an hour of service, a returning employee can be treated as new, or 26 weeks for educational organizations.
Full-Time Employee
An employee is full-time under the ACA when they average at least 30 hours of service per week, or 130 hours in a calendar month.
The Full Look-Back Guide
Every rule, example and source behind this page, in one place.
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