By: HUB’s EB Compliance Team

Most employers who are subject to the Affordable Care Act (“ACA”) employer mandate seem to have gotten the message that they need to offer qualifying coverage to full-time employees and their dependents to avoid a penalty. If an employer has chosen to use measurement and stability periods, however, it is equally important to make sure they stick with those periods.


Generally, employers who employed more than 50 full-time and full-time equivalent employees (as defined by the ACA) in the prior calendar year are subject to the ACA employer mandate. For a more fulsome description of employers subject to the ACA employer mandate and how its penalties can be triggered, see our prior article here. The penalties are assessed monthly.

More specifically, if an employee is truly full-time (working 30 hours or more per week), then he or she must be offered ACA compliant coverage that takes effect not later than 91 days from his/her hire date. Coverage must be offered for every day of the month to avoid a penalty for that month. This becomes more challenging for employees working a variable schedules, or who are classified as part-time or seasonal, but might become full-time due to increased or unexpected workload.

Option 1: Monthly Measurement Period (rarely used and generally not practical). The default rule, called the “monthly measurement period,” requires an employer to measure hours for a month. If the employee averages 30 hours per week over that month (or works 130 hours for the month as a whole), he or she has to be offered coverage as of the first day of that same month.

This can be challenging, if not impossible, especially where the employee contributes to the cost of coverage. It is not always possible to get the employee’s election on a timely basis. With one very limited exception, the premiums could not be taken retroactively on a pre-tax basis under a cafeteria plan. It also requires constant vigilance to track employee hours. While there are some options (beyond the scope of this article) that make the monthly measurement period mildly more workable, these administrative issues still exist to a large degree.

Option 2: Lookback Measurement Periods. To avoid the difficulties of measuring on a monthly basis, the IRS allows employers to adopt lookback measurement periods. Under these lookback measurement periods, the employer measures an employee’s hours over a period of time, usually 12 months (although it can be as short as three months).

If the employee averages at least 30 hours per week (or 130 hours per month) over that measurement period, then he or she must be offered coverage for a “stability period” following the measurement period (and, if the employer chooses, a buffer called an administrative period, for open enrollment). The employee is generally treated full-time during that entire stability period, even if his or her hours fluctuate above or below 30-hours in a week (or 130 hours in a month). Usually, the stability period is as long as the measurement period, but it cannot be less than six months.

For example, assume Stable Corp. has a calendar year health plan and uses a 12-month lookback measurement period that runs from December 1 to November 30. Stable’s optional administrative period (for open enrollment) is from December 1 to December 31. Employee Eduardo works a variable schedule. For the period from December 1, 2018 to November 30, 2019, he averages 35 hours per week. Stable would need to offer Eduardo health plan coverage for all of 2020, regardless of the number of hours he worked in any month in 2020.

Similar rules apply to newly hired employees who are part-time, variable hour, or seasonal. However, instead of having a fixed period (like December-November) for the measurement period, this initial measurement period starts around the time the employee is hired. It can start on his or her hire date or any date up through the first of the next month (for example, an employee hired on April 15 could have his or her initial measurement period start on any day from April 15 to May 1). Generally, beginning initial measurement periods on the first of the month following the date of hire is administratively easier.

The employee’s hours are measured over the initial measurement period (which again, can be 3-12 months). If the employee averages at least 30 hours per week (or 130 hours per month) over the initial measurement period, he or she must be offered coverage during an initial stability period. Here again, the initial stability period is 6-12 months and cannot be shorter than the initial measurement period. It also starts after the initial measurement period (plus an administrative period, if the employer chooses to have one). An employee who is being offered coverage in an initial stability period has to continue to have coverage through the end of that stability period.

Felicia is hired by Stable Corp. on April 15, 2019. Stable uses a 12-month initial measurement period, starting on the date of hire, and a 12-month initial stability period that starts first of the month following the end of the initial measurement period. Felicia averages 30 hours per week over the initial measurement period. Stable offers her coverage starting on May 1, 2020. If Felicia elects the coverage, it has to continue through at least April 30, 2021. This is true, even if Felicia was not full-time for the regular measurement period that ran from December 1, 2019 to November 30, 2020.

Why Stick to Your Measurement and Stability Periods

In our examples above, notice a key word: average. A key point of these measurement and stability rules is to ease the administrative burden of adding and dropping employees on a monthly basis.

Going back to our first example, if Eduardo works 50 hours/week in a given month during a measurement period, Stable does not immediately add him to the health plan. Why? Because eligibility is based on the average of all the hours Eduardo worked during the entire measurement period.

On the other hand, if Felicia works 10 hours/week during her May 1, 2020-April 30, 2021 stability period in the second example, she is not automatically dropped from the plan (if she elected the coverage). Why? Because the coverage provided during the stability period is essentially guaranteed for the entire stability period so long as the employee remains employed and pays his/her share of the premium cost.

Don’t Drop. If Stable dropped Felicia during the stability period, then she would not be offered coverage in each month during which she was eligible for coverage. If she applies for, and receives, subsidized coverage through an ACA marketplace/exchange after being inappropriately dropped from the health plan, the employer would owe an ACA employer mandate penalty (i.e. the Employer Shared Responsibility Penalty or ESRP).

When Helping Hurts. What about adding Eduardo early? While this might seem to be favorable to Eduardo, it violates the ACA employer mandate rules. Specifically, Stable Corp. has to consistently apply its measurement and stability periods. The employer mandate regulations do allow Stable Corp. to apply different measurement period rules based on the following four categories of employees: (1) union versus nonunion; (2) employees covered by different collective bargaining agreements; (3) salaried versus hourly; and (4) employees whose primary places of work are in different states. However, employees within each category must be treated the same.

Assume Stable Corp. applies the same lookback measurement period rules (Option 2 above) to all non-union hourly employees, like Eduardo. By adding Eduardo before his measurement period is over, Stable Corp. is converting him to a monthly measurement period employee (Option 1 above). In that case, Stable Corp. would need to apply the monthly measurement period to all non-union hourly employees because the rules do not allow them to use different periods for the same categories of employees. As a result, Stable Corp. is exposed to potential penalties for all the other non-union hourly employees who work full-time for a month, but are not offered coverage.

Reporting Woes. Additionally, as part of Stable Corp’s ACA reporting, Stable may incorrectly report that Eduardo and other similar employees were in a lookback measurement period. By doing so, Stable is saying it was not required to offer them coverage. However, by adding Eduardo early, Stable is making that statement potentially untrue since adding Eduardo early means non-union hourly employees should now be measured under the monthly measurement period. Making an untrue statement on these IRS reporting forms could expose Stable to additional tax penalties.


If an employer opts to use measurement and/or stability period rules for some or all of its employees, it needs to follow those rules consistently. Adding and dropping employees may seem like the right course of action at any given time (especially adding someone earlier than the measurement periods require). However, it can expose an employer to significant penalties if it is not consistent with the employer’s chosen measurement and stability period rules. These observations and guidelines are not just esoteric and theoretical. We have seen many IRS enforcement letters that are triggered by circumstances just like the ones described above.

There are some nuances of the measurement and stability period rules that are beyond the scope of this article. For example, employers can change how they measure hours (such as make the measurement and stability periods shorter or longer, or even moving to the monthly measurement period). However, they have to do it consistently for applicable groups of employees and not on a one-off basis, like described above for Eduardo or Felicia. There are also transition rules that apply. Additionally, there are special rules such as what to do when an employee changes jobs to one where the employer is using different measurement and/or stability period rules. All of this is to say that an employer is not necessarily stuck using the same measurement and stability period rule forever, but they do have to apply the rules they choose consistently to groups of employees and make sure they follow the IRS rules to avoid penalties.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.


The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.