How is the weeks-worked equivalency rule applied in the case of mos. w/only 3 full wks

[JJD]

I have a question about how to apply the weeks-worked equivalence rule for purposes of determining an employer's status as an ALE in months which have only 3 full weeks.

Under the ACA, an ALE is an employer which averaged at least 50 full-time employees per month in the preceding calendar year.

"Full-time employee" is defined as one who is "employed an average of at least 30 hours per week" and 130 hours of service in a month is treated as the equivalent of at least 30 hours of service per week.

For purposes of counting an employee's hours in a month, an employer is required to use the monthly measurement method. Under this method, an employer counts an employee's hours on a month-by-month basis (instead of, for example, averaging an employee's hours over a year and applying the average to each month).

The employer may make its month-by-month count on the basis the actual number of hours to which an employee is entitled to payment (and in the case of hourly employees, is required to make the determination on that basis).

However, in the case of non-hourly employees the employer is also permitted to use either of two equivalencies--the days-worked equivalency, under which an employee is credited with 8 hours of service for each day in which the employee performs an hour of service, and the weeks-worked equivalency, under which an employee is credited with 40 hours of service for each week in which the employee performs an hour of service.

The "actual hours of service" method of determining an employee's hours is straightforward, if sometimes not useful in the case of non-hourly employees.

Applying the days-worked equivalency within the context of the monthly measurement method is also straightforward enough.

However, the weeks-worked equivalency cannot be applied directly where a month has fewer than 4 full weeks. Four full weeks would put the count under the weeks-worked equivalency at 160 hours, and would therefore qualify an employee as a full-time employee without regard to any partial weeks. But there are months which contain only 3 full weeks. For those weeks, the weeks-worked equivalency (considering only full weeks of work) would put an employee's hours worked at only 120 hours.

For example, suppose a 30 day month began on the fifth day of the week. In that case, the month would end on the fifth day of the fourth week. In the case of a 31 day month, the month would end on the sixth day of the fourth week. In either case, an employee who worked an hour in each full week of the month would be credited with only 120 hrs. based upon the complete weeks contained by the month.

In the above example, how are the days worked in the short first week of the month (the first four days of that week) and the short last week of the month (the first five or six days of that week) added to the number of hours worked determined under the weekly-equivalency method (120)? Does one count 40 hours for each of the short weeks or take into account some fewer number of hours proportionate to the lengths of the short weeks?

The Treasury Regulations appear to be silent on the issue. There are rules for how to conform partial weeks to the monthly measurement method in the case of tabulating hours to determine full-time employee status for purposes of identifying the employee to whom an employer has a duty to offer health insurance coverage, but those rules specifically do not apply to ALE determinations. Further, the Treasury Regulations appear to rule out some easy fixes. For example, it does not appear to be permissible to mix-and-match the days-worked equivalency and the weeks-worked equivalency, and the selection of one or the other equivalency appears to be binding for a year (as does an employer's definition of "week" and "month").

Should 40 hours be counted for each partial week? Instead, should a percentage of the weekly equivalency amount be used? In the latter case, should the percentage take into account all 7 days in a week or just the work days?

Your thoughts would be appreciated. If I have missed something in the regs that covers this, feel free to point it out.

[Flyboyjohn]

How about dividing the year into 4 5-week months and 8 4-week months as contemplated by the regulations, will that help?

Of course, anyone working at least 1 hour in each week is going to be considered full-time in both the 4-week and 5-week months.

[JJD]

@Registered: Doesn't work. Matching weeks to months in that way in the regs is restricted to the issue of determining who is a full-time employee for purposes of the offer of coverage, not for purposes of determining whether an employer is an ALE.

[Flyboyjohn]

Agree that the Regs don't specifically permit this methodology for determining ALEs but what are you going to do when you have weekly payroll periods and no possible way to determine hours on a calendar monthly basis?

I have no problem advising clients to use this as a "best efforts" approach using 150 hours as the FT determination and 138 hours as the FTE divisor in the 5 week months and 120 hours and 111 hours in the 4 week months.

[JJD]

@Flyboyjohn: This is from TR 54.4980H-3©(1), Monthly measurement method (underlining added): "Under the monthly measurement method, an applicable large employer member determines each employee's status as a full-time employee by counting the employee's hours of service for each calendar month... This paragraph ©(1) (except with respect to the weekly rule) applies for purposes of the determination of status as an applicable large employer; paragraphs ©(2) through (4) of this section do not apply for purposes of the determination of status as an applicable large employer."

The "weekly rule" is the one you're talking about, under which service for a month is counted in terms of 4 or 5 weekly periods. It's not just that the Regs don't specifically permit use of the weekly rule for determining ALE status--they exclude it.

[JJD]

I think I've come to the conclusions that under the weeks-worked equivalency, you count 40 hours of service for each full or partial week in which an employee performs an hour of service, that this overstates an employee's service, and that it doesn't matter.

Under the weeks-worked equivalency, 4 complete weeks of work equals 160 hours. What you do with stumps of weeks in such a month wouldn't matter--the employee would already by over full-time status. True, it's possible for a month to have fewer than 4 complete weeks. Even a 31 day month could have 5 days on either side of 3 full weeks. But counting 40 additional hours for each stump of a week (80, in this case of a 31 day month) would be unlikely to distort results for ALE determination purposes since the service performed on the additional days ought to well exceed another 10 hours of service. If the count is close, then the employer shouldn't be using the weeks-worked equivalency for determining ALE status. (This issue doesn't arise for full-time determinations for purposes of the offer of coverage since the weekly-rule can be applied in that case, and the weekly rule adjusts full-time employment determinations to a reasonable assessment of the number of weeks in a month and the number of hours of service that ought to be associated with that number of weeks to produce full-time status.)

It is also true counting hours under this interpretation of the weeks-worked equivalency could turn every part-time employee into an FTE for ALE purposes. But if an employer is on the borderline of ALE status and has enough part-time employees for this to be an issue, then it shouldn't be using the weeks-worked equivalency in the first place.

FWIW.

[Flyboyjohn]

So what's your recommendation for a borderline ALE that is under a weekly pay period and only has hours of service information on a weekly basis?