Look-Back Measurement Method
The look-back measurement method averages hours over a measurement period you choose, then locks the result for a stability period. It was built for variable-hour and seasonal workforces.
The three things to know.
Measure Once, Hold the Answer
Hours are averaged over the measurement period. An employee found full-time stays full-time for the stability period, whatever their hours turn out to be.
Three Periods Do the Work
A measurement period of 3 to 12 months, an optional administrative period of up to 90 days, and a stability period that follows. Each has limits set by the regulation.
Penalty Liability Only
The method applies to employer penalty liability. It cannot be used to decide whether you are a large employer, which is counted month by month.
Sources: 26 CFR § 54.4980H-3. General information, not legal advice.
A worked example.
A 12-Month Window
A restaurant uses a 12-month measurement period that ends October 14. A line cook’s hours total 1,620 over that window; a server’s total 1,404.
What the Rule Produces
The cook averages about 31 hours a week and is full-time for the stability period that follows. The server averages about 27 and is not. Both results hold through the stability period, whatever their hours turn out to be.
Four steps to apply it.
1. Choose the design
Set the measurement, administrative and stability periods.
2. Run the window
Total hours for each employee in the category.
3. Classify
Decide who is full-time and record the result.
4. Hold it
Make offers for the stability period and leave status alone until it ends.
Where it goes wrong. Forgetting that the method does not decide large-employer status, which is always counted monthly.
The questions that come up next.
Who should use the look-back method?
Employers with variable hours, seasonal peaks or a large part-time population, where month-to-month status would otherwise flip constantly.
Does it protect us if an employee drops hours mid-period?
Yes for penalty purposes. An employee found full-time stays full-time through the stability period, so the offer you made covers that whole period.
Does every employee need the same periods?
Not necessarily. Periods can differ across permitted categories, but they must be applied consistently within each category.
How do we tell employees about it?
Describe it in the plan document and summary plan description, and tell each employee their result and the coverage offer.
Does look-back cost more?
It can, because full-time results hold even if hours fall. It trades some cost for stability and fewer changes.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related pages on the look-back method.
Measurement Period
The measurement period is the window of three to twelve months over which you average each employee’s hours.
Administrative Period
The administrative period is an optional gap of up to 90 days between measurement and stability.
The Full Look-Back Guide
Every rule, example and source behind this page, in one place.
Talk it through with someone who runs this every year.
We help you choose the design, document it and reconcile the hours before the numbers reach your reporting.
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