ACA safe harbor: Determining employee status for assessing ‘play or pay’ penalties
Topic: Affordable Care Act
Type: Guidance

To address the problem of identifying full-time employees, in proposed regulations, the IRS has provided a safe-harbor method for determining the status of individual employees for a set period of time. This safe harbor (look-back measurement method) provides an optional method for employers to use to determine full-time employee status for ongoing employees and new variable hour and seasonal employees. There are also details on what to do in the case of a transition from a new employee to an ongoing employee.

The safe harbor generally operates on the following principles: employers who choose to use the safe harbor will establish a "measurement period" of between three and 12 months (as chosen by the employer), during which an employee’s hours of service are measured. Each employee who averages 30 hours of service per week during that measurement period must be treated as full-time during a subsequent stability period (during which the status determination will continue to apply) that is generally the same length as the measurement period (subject to limited exceptions) or six months, whichever is greater.

The manner in which the safe harbor is applied differs slightly depending on whether the employee is a new employee or an ongoing employee.

Ongoing employees. An employer determines each ongoing employee’s full-time status by looking back at the standard measurement period. The standard measurement period is a time period of at least three but not more than 12 consecutive months that an employer selects and uses. If the employer determines that an employee was employed on average at least 30 hours per week during the standard measurement period, then the employer treats the employee as a full-time employee during a subsequent stability period.

An ongoing employee is generally an employee who has been employed by the employer for at least one standard measurement period.

New variable hour and new seasonal employees. Employers can determine whether new variable hour employees and new seasonal employees are full-time employees by using an initial measurement period of between three and 12 months (as selected by the employer) that begins on any date between the employee’s start date and the first day of the first calendar month following the employee’s start date. The employer measures the new employee’s hours of service during the initial measurement period and determines whether the employee was employed on average at least 30 hours of service per week during this period.

A variable hour employee is an employee if, based on the facts and circumstances at the employee’s start date, the employer cannot determine whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period because the employee’s hours are variable or otherwise uncertain. (The employer may not take into account the likelihood that the employee may terminate employment with the employer before the end of the initial measurement period.)

Transition from new employee rules to ongoing employee rules. Once a new variable hour employee or new seasonal employee has been employed for an entire standard measurement period, the employer must test the employee for full-time employee status, beginning with that standard measurement period, in the same way as other ongoing employees.

Changes in employment status and breaks in service. The proposed rules discuss the situation in which there is a change in employment status. There are also details on how to calculate employees who have breaks in service.

For more information on determining full-time employees for assessing ACA play or pay penalties and other important ACA play or pay information, visit or

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