Employee Classification based on Measurement Method

Perhaps the most important step for any employer who has adopted the look back measurement method is the initial step of classifying an employee. If an employer misclassifies its employees, it could lead to a penalty under section 4980H. Unfortunately, the government has already stated there is no corrections procedure for misclassifying a worker.

An employer who adopts the look back measurement method can only classify a new employee with one of four labels: a part-time employee, a variable hour employee, a seasonal employee, or a full-time employee. Whether a new employee is a part-time employee, a variable hour employee, or a seasonal employee, the employee will be treated under one set of rules by being placed into an Initial Measurement Period. A separate set of rules exists for a new employee classified as a full-time employee.

Under the look-back measurement method, the most common mistake is classifying NEW employees as full-time employees; hence, requiring the employer to offer the NEW employee health insurance coverage based on the employer’s pre-selected waiting period, which cannot be longer than 90 days OR the first day of the fourth calendar month following the NEW employee’s start date.

Compare this to classifying a NEW employee as variable hour; hence, the employer is not required to offer coverage until the first day of the fourteenth calendar month following the NEW employee’s start date.

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