Get to Know the ACA’s Rule of Parity
3 minute read
Without the proper tools or subject matter expertise, tackling the responsibilities of the Affordable Care Act’s Employer Mandate on your own can be overwhelming.
This is especially true if you are an employer in an industry which relies on employing large numbers of variable-hour employees, such as restaurants, staffing organizations, and home healthcare facilities.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) are employers with 50 or more full-time employees and full-time equivalent employees) and are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
If you are an ALE with a predominately variable-hour workforce, you’ve likely been directed to use the IRS’s Look-Back Measurement Method to determine which of your employees are considered full-time. Under the Look-Back Measurement Method, employers are allowed to monitor and track their employees’ hours of service for as little as three months and as long as 12 months to determine if they are full-time or part-time before extending an offer of health coverage. Under the ACA, the IRS defines a full-time employee for any calendar month as “an employee employed on average at least 30 hours of service per week, or 130 hours of service per month.”
ALEs that use the Look-Back Measurement Method and or have experienced furloughs, layoffs, and reductions in hours of service for employees because of COVID-19 pandemic should be mindful of the Rule of Parity. It could help you significantly cut down on excess costs.
According to the IRS regulations, the ACA’s Rule of Parity is used “For purposes of determining the period after which an employee may be treated as having terminated employment and having been rehired, an applicable large employer may choose a period, measured in weeks, of at least four consecutive weeks during which the employee was not credited with any hours of service that exceeds the number of weeks of that employee’s period of employment with the applicable large employer immediately preceding the period that is shorter than 13 weeks (for an employee of an educational organization employer, a period that is shorter than 26 weeks).”
Employers should note that in order for the Rule of Parity to be claimed, the period of absence must exceed the duration of the employee’s period of employment immediately before the break in service.
Here’s an example:
Josh Doe works as a dishwasher with a variable-hour schedule at a local restaurant. He has been employed by the restaurant for three years. He was determined to be full-time during his measurement period under the Look-Back Measurement Method and was receiving health benefits from his employer during his corresponding stability period. He left the restaurant to pursue a job as a house painter during that stability period. He returned to the restaurant after 16 weeks. When John returned, his employer no longer treated him as a full-time employee. Instead, the restaurant treated him as a new hire and started measuring his initial measurement period under the ACA as allowed by the Rule of Parity.
If John had returned to the restaurant within 13 weeks, rather than waiting to return until after 13 weeks (and in his case 16 weeks), his employer would have been required to extend him an offer of health coverage for the remainder of his prior stability period because John was counted as a full-time employee as measured during his prior measurement period. But, because John had left his employment at the restaurant for more than 13 weeks, the restaurant may consider him a new hire under the ACA regulations, despite his three years of previous service.
In this case, the Rule of Parity relieves the restaurant from having to continue to offer John’s health insurance as a full-time employee by taking into account the length of time John was not working at the restaurant.
Whether you’re running a restaurant, staffing agency, healthcare facility, or other organization, complying with the ACA on your own can be difficult, especially if administering the Look-Back Measurement Method. Consider outsourcing a third-party expert who specializes in ACA compliance, data consolidation, and analytics to avoid the headache and focus your resources on bettering your business.
If you need assistance complying with the ACA’s Employer Mandate, download The 2021 ACA Essential Guide for Employers to learn more.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.
