Ask a Zenefits Advisor: Can I Remove Employees From Benefits if Their Hours Drop?

An accurate headcount is crucial to compliance. Bud explains how to use the lookback period to determine your amount of full-time employees.

PEO Considerations

Dear Bud,
Hoping you can help me with some compliance confusion. I have an employee who was working 30+ hours per week, so I offered him health insurance. But then he dropped back to below 30 hours a week. When he becomes a part-time employee again, am I able to remove him from benefits?
Thanks,
ACA Hours Making Admin Delirious

Dear A.H.M.A.D.,

Here’s how you handle this issue. Once qualified for benefits, your employee is allowed to stay on benefits until the effective date or anniversary of your policy. After that time, if the employee is not, on average, working full-time hours, then you can remove him from benefits. Each year, you (as employer) have the obligation to review headcount and hours and determine your employees’ eligibility for benefits. This is done by using a lookback period, as described below.
To determine if employees are eligible for benefits, employers must establish a “lookback” period of 3-12 months. Once the length is selected, you determine (via payroll records) if an employee has worked over 30 hours per week (or 130 hours per month) for the majority of the lookback period. If so, the employee is considered full time and must be offered benefits until the next annual lookback period is reviewed. Should an employee slip below the 130-hour requirement during the lookback period, the employee can be removed from coverage at the end of the benefits year.
The length of the lookback period is up to the employer; however it must be between 3-12 months, and you must be consistent in its use (no switching back and forth). For example, let’s say you have an effective date for medical benefits of February 1st and a 3-month lookback period of Oct/Nov/Dec 2015. If employees worked more or less than 130 hours per month during that time, they are either qualified or disqualified for benefits for the 12 months beginning February 1st. The next lookback period is Oct/Nov/Dec of 2016.
The new ACA regulations require that employers determine how many of their employees are considered full time in order to comply with the employer mandate.

  1. Employees who normally work 30 or more hours per week or 130 hours per month are classified as full-time employees.
  2. Employees are variable-hour employees if their weekly schedules fluctuate above and below 30 hours, and it cannot be immediately determined whether they work an average of 30 hours per week.
  3. Employees can be excluded from the full-time employee calculation if they work on a seasonal basis (harvest time, etc.) or work no more than 120 days in a year.

The ACA’s full-time employee definition of 30 hours per week is different from what many companies currently use (normally 40 hours per week), but getting an accurate headcount is crucial to compliance in 2016 and beyond. An employer’s number of full-time (and full-time equivalent) employees determines what part of the Patient Protection and Affordable Care Act (PPACA) law governs them.
Under the ACA’s shared responsibility provision, a company that employs at least 50 full-time equivalent employees (or 100, depending on the state in which they’re located) must offer affordable medical coverage to at least 95% of its full-time equivalent employees and their dependent children age 26 or younger—or face stiff penalties. (Find the current small group employer size definition for your state here.)
So, to recap:

  • If your employee worked 130 hours per month during the lookback period, then he is deemed eligible for another 12 months of coverage. In this case, you should not remove him from benefits.
  • If your employee did NOT work 130 hours per month during the lookback period, he is considered a part-time employee going forward until the full-time hours requirement is satisfied again. In this case, you can remove him from benefits.

The ACA employee calculations can significantly increase the benefits costs for an employer, but penalties for inaccurate calculations can prove to be an even bigger burden. I recommend doing a thorough review of headcount (using the calculations above) prior to your benefits effective dates. Then, get advice from your trusted broker, or consider using a tool that automatically handles your ACA compliance.

Got a question about benefits and insurance?

Send it to [email protected].
The answers on Ask Bud serve as basic guidelines and are for informational purposes only. Bud is a treasure trove of knowledge, but is unable to provide legal, tax, or fact-specific human resources advice. Once a question is submitted, Bud and Zenefits reserve the right to accept, reject, edit, modify, or otherwise change it. All content on the Zenefits website, including questions received and answers provided by Ask Bud, are Zenefits property.

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