Skipping the Second Test
A new variable-hour hire must also be tested on the first full standard measurement period after the start date. Missing that test leaves the status stale at the next plan year.
The three things to know.
Why There Are Two Tests
The initial period sets the employee’s first status. The standard measurement period then puts them on the same cycle as everyone else.
What Goes Wrong
The employee is found full-time on the initial period and never re-tested, or found not full-time and never re-tested even though hours rose.
The Fix
Track every new hire’s initial period end date and also place them in the first full standard measurement period that follows.
Sources: 26 CFR § 54.4980H-3. General information, not legal advice.
A worked example.
The New Hire Who Was Never Retested
A variable-hour hire is found not full-time on her initial measurement period ending in October. Nobody places her in the standard measurement period that began the same month.
What the Rule Produces
At the next plan year her status is stale, and her hours, which had risen, were never tested. She should have been in the standard cycle, and the employer risks missing an offer.
Four steps to apply it.
1. List variable-hour hires
Identify who is in an initial period.
2. Mark the end date
Record when it ends.
3. Place them in the standard period
Add them to the first full cycle.
4. Check at close
Test again.
Where it goes wrong. Assuming the initial result applies forever.
The questions that come up next.
Does the first stability period survive the second test?
Yes. An employee found full-time on the initial period stays full-time for that stability period, even if the second test comes out lower.
When does the second test take effect?
At the next stability period for the standard cycle.
Who tracks it?
Your reporting vendor or your benefits administration system should, but the employer owns the result.
Does the standard test change the first stability period?
No. The first stability period holds.
Who tracks it?
Your benefits system or vendor, reviewed by HR.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related pages on the look-back method.
Using Look-Back for Large Employer Status
Large employer status is a monthly count of full-time employees plus full-time equivalents.
Hours Living in Three Systems
Payroll, scheduling and the benefits platform often disagree, and the regulations require hours from records of hours worked and paid.
The Full Look-Back Guide
Every rule, example and source behind this page, in one place.
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