1. Employer Shared Responsibility: Look Back Measurement Method Version: October 18, 2013 1

2. Disclaimer This training material is for informational purposes only and is not intended as tax or legal advice. Please talk with your attorney or tax professional for specific questions related to your Tribe or Tribal entity as an employer. 2

3. This Training Seven sections to this training: – Overview of Tribes and Tribal Entities as Employers under the ACA – Small Business Health Options Program (SHOP) – Small Business Tax Credit (Tax Credit) – Employer Shared Responsibility Look Back Measurement Method Transition Rules – IRS Reporting and Other Requirements 3

4. Look Back Measurement Method Topics Introduction Determining Full-Time Employees Using the LBMM for Ongoing Employees Using the LBMM for New Variable Hour & New Seasonal Employees Other Rules 4

5. Introduction 5

6. The proposed rules for determining full-time employees are specific to assessing employer liability under section 4980H (a) and (b). See 78 Fed. Reg. 218. This topic is technical and directed towards a Tribe’s or Tribal Entity’s Human Resource staff and management. The rules for determining full-time employees are complex. 6

7. Introduction (continued) In order to determine full-time employee status, an employer has to calculate its employees’ hours of service. Employers will have to prepare in 2013 and 2014 to ensure that their systems will be able to collect and generate the information needed to avoid assessable payments. 7

8. Full-Time Employee Definition Full-Time Employee = An employee who is employed an average of 30 hours of service per week, or 130 hours of service per month. 8

9. Full-Time Employees: Determining Hours of Service Hours of Service includes each hour an employee is paid or entitled to payment: 1.For performance of duties for the employer; or 2.For a period of time during which no duties are performed due to vacation, holiday, illness, incapacity including disability, layoff, jury duty, military duty or leave of absence. 9

10. Full-Time Employees: Determining Hours of Service (continued) For Hourly Employees : – Calculate the actual hours of service by the employee. For Non-Hourly Employees : – Calculate the actual hours of service by the employee. – Days-worked equivalency: Credit the employee with 8 hours of service for each day the employee would be credited with at least 1 hour of service. – Weeks-worked equivalency: Credit the employee with 40 hours of service for each week. 10

11. Full-Time Employees: Determining Hours of Service (continued) Rules as to Use of Equivalencies: – Prohibited use of equivalencies: Cannot be used to substantially understate an employee’s hours of service. – Different classifications of non-hourly employees: Different equivalencies may be used for different classifications of non-hourly employees provided that the classifications are reasonable and consistently applied. – Calendar Year Changes: An employer may also change the method for calculating non-hourly employee each calendar year. For example, for all non-hourly employees, an employer may use the actual hours worked in 2015, but may use the days-worked equivalency method for counting hours of service in 2016. 11

12. Determining Full-Time Employees 12

13. Two Options to Determine Full-Time Status of Employees (1)Calculate hours of service of employees on a monthly basis. – May be burdensome for an employer. – Would require an employer to make offers of insurance coverage on a monthly basis if an employees’ hours fluctuate monthly. (2) Calculate hours of service of employees over a 3 to 12-month period using the Look Back Measurement Method. 13

14. Look Back Measurement Method (LBMM) The IRS has proposed an optional Look Back Measurement Method which provides the minimum standards to facilitate identification of full-time employees. – It is an alternative method to calculating full-time employees on a monthly basis. – Specific rules for use of payroll periods. IRS guidance suggested that employers can always treat more employees as eligible for coverage or offer coverage to more employees. 14

15. Look Back Measurement Method (continued) The Look Back Measurement Method may be used to determine the status of: – Ongoing Employees – New Full-Time Employees – New Variable Hour and New Seasonal Employees – Transition from New Variable Hour (or New Seasonal Employee) to Ongoing Employee – Changes in Employment Status of New Variable Hour (or New Seasonal) Employee 15

16. Using the LBMM for Ongoing Employees 16

17. Look Back Measurement Method: Ongoing Employees Under this method, the employer determines an Ongoing Employee’s full- time status by looking back at a Standard Measurement Period selected by the employer. 17

18. LBMM: Ongoing Employees 18 Standard Measurement Period *Period where employer measures Ongoing Employees’ hours of service * 3-12 months Administrative Period (optional) *Used to count employees’ hours of service, offer insurance coverage if full- time, and enroll employees *Up to 90 days Stability Period *Period employees are provided with insurance coverage *Specific rules apply as to length in relation to SMP *May be the same as employer’s plan year Beginning in 2015*, an employer will have to select one or more Standard Measurement Periods, Administrative Periods (optional), and Stability Periods. This will be an ongoing requirement into the future. * Note: An employer will have to determine a Transitional Measurement Period in 2014 for 2015.

19. LBMM: Ongoing Employees Standard Measurement Period (SMP) Administrative Period (Optional) Stability Period -3 to 12 month period selected by employer -Must be uniform and consistent for all employees in the same permissible employee categories -For a 12 month SMP, employer can use the calendar year, non- calendar year, or different 12- month period -SMPs with different lengths & with different start and end dates are allowed for permissible employee categories* -Up to 90 day period -Must begin immediately after the end of the SMP and ends immediately before Stability Period -Must overlap with the prior Stability Period -Different lengths may be used for permissible employee categories -Stability Periods with different lengths & with different start and end dates are allowed for permissible employee categories* 19 * Subject to the rules governing the relationship between the length of the measurement period and stability period.

20. Look Back Measurement Method: Permissible Employee Categories Collectively bargained employees and non- collectively bargained employees Each group of collectively bargained employees covered by a separate collective bargaining agreement Salaried employees and hourly employees Employees whose primary places of employment are in different States 20

21. LBMM Example: Ongoing Employees Standard MP Jan 1 to Dec 31 Stability Period Mar 1 to Feb 28 AP AP AP AP Stability Period Mar 1 to Feb 28 Stability Period Mar 1 to Feb 28 Year 2 Year 3 Year 4 21 Stability Period Mar 1 to Feb 28 Standard MP Jan 1 to Dec 31 Year 1 AP AP AP AP Administrative Period (AP) = Count hours of service, make offer if FT, enroll employee. Standard MP Jan 1 to Dec 31 AP AP Standard MP Jan 1 to Dec 31 AP AP Stability Period = Period employee is provided with coverage. Ongoing Note: A Tribal Employer will have to determine a Transitional Measurement Period in 2014 for 2015. Transitional rules from 2014 to 2015 not released yet. Facts: Tribal Employer selects a 12-month SMP of January 1 to December 31. Tribal Employer with plan year of March 1 to February 28.

22. Ongoing Employee: Average of at Least 30 Hours of Service Per Week in SMP An employer must treat the employee as full-time in the Stability Period that begins immediately after the SMP and any applicable Administrative Period. The Stability Period must be: – At least six consecutive calendar months. – Cannot be shorter than the SMP. 22

23. Example: Ongoing Employee with Average of at Least 30 Hours of Service Per Week in SMP Standard Measurement Period Jan 1-Dec 31 Stability Period Mar 1-Feb 28 Stability Period Mar 1-Feb 28 AP Stability Period Mar 1-Feb 28 Year 1 Year 2 Year 3 23 2. In AP, Tribal Employer counts George’s hours of service and determines that he worked an average of at least 30 hours of service per week in the SMP and offers coverage to George for the associated Stability Period. Facts: Tribal Employer with plan year of March 1 to February 28. 1. If George, Tribal COO, works an average of at least 30 hours of service per week in the SMP, then George will be considered full-time in the associated Stability Period. 3. Conclusion: Tribal Employer made the offer of coverage to George for the associated Stability Period so Tribal Employer will not incur an assessable payment.

24. Ongoing Employee: Average of <30 Hours of Service Per Week in SMP An employer may treat the employee as not full-time during the subsequent Stability Period. The Stability Period: – Cannot be longer than the SMP. – Must begin immediately after the end of the SMP and any applicable Administrative Period. 24

25. Example: Ongoing Employee with Average of <30 Hours of Service Per Week in SMP Standard MP Oct 15 to Oct 14 Standard MP Oct 15 to Oct 14 Stability Period Jan 1 to Dec 31 Stability Period Jan 1 to Dec 31 AP AP AP AP Stability Period Jan 1 to Dec 31 Stability Period Jan 1 to Dec 31 Year 2 Year 3 Year 4 25 Facts: Tribal Employer with plan year of January 1 to December 31. Stability Period Jan 1 to Dec 31 Standard MP Oct 15 to Oct 14 Year 1 AP AP AP AP 1. Mary works an average <30 hours of service per week in this SMP. 2. Mary works an average of <30 hours of service per week in this SMP. AP= Administrative Period Oct 15 to Dec 31 3. Conclusion: Tribal Employer will not incur an assessable payment for not offering coverage to Mary for the associated Stability Periods.

26. Ongoing Employees: Change in Position of Employment or Other Employment Status in the Stability Period Such change during the Stability Period will not affect the application of the classification of the employee as full-time (or not full-time) for the remainder of the Stability Period. 26

27. New Full-Time Employees (Non-Variable & Non-Seasonal) New employee: Employed less than one SMP. If a new employee is “reasonably expected” at his or her start date to be a full-time employee the employer must offer coverage. – Offer must be made at or before the end of the employee’s initial three full calendar months of employment. Assessable Payment: Failure to offer coverage may result in an assessable payment for the three months and any subsequent months coverage was not offered. 27

28. Using the LBMM for New Variable Hour & New Seasonal Employees 28

29. Look Back Measurement Method: New Variable Hour and New Seasonal Employees Under this method, the employer determines a New Variable Hour Employee’s or New Seasonal Employee’s full-time status by looking back at an Initial Measurement Period selected by the employer. 29

30. New Variable Hour and New Seasonal Employees Variable Hour Employee: An employee not “reasonably expected” to be employed on average at least 30 hours per week. Seasonal Employee (not defined by IRS yet): Through 2014, an employer may use a reasonable, good faith interpretation of the term Seasonal Employee for purposes of section 4980H. An employer may use the Look Back Measurement Method for its New Variable Hour and New Seasonal Employees if it uses this method for its Ongoing Employees. 30

31. LBMM: New Variable Hour and New Seasonal Employees 31 Initial Measurement Period *Period where employer measures a New Variable Hour or New Seasonal Employee’s hours of service 3-12 month period *Overlaps with SMP Initial Measurement Period *Period where employer measures a New Variable Hour or New Seasonal Employee’s hours of service 3-12 month period *Overlaps with SMP Administrative Period (optional) *Used to count employees’ hours of service, offer insurance coverage if full-time, and enroll employees *Up to 90 days Administrative Period (optional) *Used to count employees’ hours of service, offer insurance coverage if full-time, and enroll employees *Up to 90 days Stability Period *Period employee is provided with insurance coverage *Must be the same length as the Stability Period for Ongoing Employees *Other rules may apply Stability Period *Period employee is provided with insurance coverage *Must be the same length as the Stability Period for Ongoing Employees *Other rules may apply In 2015, an employer will have to select one or more Initial Measurement Period(s), Administrative Period(s) (optional), and Stability Period(s) for New Variable Hour and New Seasonal Employees. Unlike the SMP, it is a one time measurement for New Variable Hour and New Seasonal Employees.

32. LBMM: New Variable Hour and New Seasonal Employees Initial Measurement Period (IMP) Administrative Period (Optional) Stability Period -3 to 12 month period selected by the employer -Must begin on a date between the employee’s start date and the first day of the first calendar month following the employee’s start date -IMPs with different lengths & with different start and end dates are allowed for permissible employee categories* -May be applied with an IMP and before the start of the Stability Period -Up to 90 days which includes all periods between the start date of the New Variable Hour or New Seasonal Employee and the date the employee is first offered coverage -Different lengths may be used for permissible employee categories -Must be the same length as the Stability Period for Ongoing Employees -Stability Periods with different lengths & with different start and end dates are allowed for permissible employee categories* 32 -Time Limit: The IMP and the Administrative Period combined cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary date of the employee’s start date. * Subject to the rules governing the relationship between the length of the measurement period and stability period.

33. Standard MP Jan 1-Dec 31 2015 2016 33 Initial MP June 1-May 31 Initial MP June 1-May 31 Standard MP Jan 1-Dec 31 Standard MP Jan 1-Dec 31 Standard MP Jan 1-Dec 31 2017 Initial Stability Period July 1-June 30 Initial Stability Period July 1-June 30 Initial AP 1. IMP can start on a date between John’s start date and first day of next calendar month following his start date. Here, John’s IMP begins on June 1. LBMM Example: New Variable Hour Employee Note: Overlaps with SMP Facts: John is a retail clerk with a start date of May 15, 2015. Stability Period Mar 1-Feb 28 Stability Period Mar 1 to Feb 28 AP 2. In Initial AP, Tribal Employer must count John’s hours of service in the IMP to determine if he worked on average at least 30 hours of service per week (FT). 3. If John was FT in IMP, then Tribal Employer must offer coverage to John for the Initial Stability Period.

34. New Variable Hour and New Seasonal Employees: Average of at Least 30 Hours of Service Per Week in IMP Employer must treat the employee as full-time during the Stability Period that begins immediately following the IMP and any associated Administrative Period. The Stability Period : – Must be a period of at least six consecutive calendar months. – Cannot be shorter than the IMP. 34

35. Standard MP Jan 1-Dec 31 2015 35 Initial MP June 1-May 31 Initial MP June 1-May 31 Standard MP Jan 1-Dec 31 2. Must treat John as full-time in the Initial Stability Period Initial Admin Period= June 1-June 30. Standard MP Jan 1-Dec 31 Standard MP Jan 1-Dec 31 2015 Initial Stability Period July 1-June 30 Initial Stability Period July 1-June 30 Initial AP 1. If John is full-time in IMP then… Example: New Variable Hour Employee-Average of at Least 30 Hours of Service Per Week in IMP Facts: John is a retail clerk with a start date of May 15, 2015. 3. Conclusion: Tribal Employer must offer coverage to John for the Initial Stability Period if he works an average of a least 30 hours of service per week in the IMP in order to avoid an assessable payment.

36. 3. Conclusion: Since Dan’s time was measured for less than 4 months (out of 12) in the IMP, Dan would not be considered a full-time employee in the Initial Stability Period so Tribal Employer would not have to offer coverage. Standard MP Jan 1-Dec 31 2015 2016 36 Initial MP June 1-May 31 Initial MP June 1-May 31 Standard MP Jan 1-Dec 31 2. Must treat Dan as full-time in Initial Stability Period. Initial Admin Period= June 1-June 30. Standard MP Jan 1-Dec 31 Standard MP Jan 1-Dec 31 2017 Initial Stability Period July 1-June 30 Initial Stability Period July 1-June 30 Initial AP Initial AP 1. If Dan is full- time in Initial Measurement Period then… Example 1: New Seasonal Employee-Average of at Least 30 Hours of Service Per Week in IMP Facts: Dan is hired on May 15, 2015 and will work during tourist season through September 14. IMP is 12 months.

37. 3. Conclusion: Tribal Employer must offer coverage to Dan for the Initial Stability Period to avoid an assessable payment. SMPSMP 2015 2016 37 IMP SMPSMP 2. Must treat Dan as full- time in the Initial Stability Period (Sept 1 to Feb 28). Note: Cannot be shorter than 6 consecutive months. Initial AP= Aug 15 to Aug 31. SMPSMP SMPSMP ISP 1. If Dan is full-time in IMP (May 15 to Aug 14) then… Example 2: New Seasonal Employee-Average of at Least 30 Hours of Service Per Week in IMP Facts: Dan is hired on May 15, 2015 and will work during tourist season through September 14. IMP is 3 months. SMP is also 3 months. SMPSMP SMPSMP SMPSMP SMPSMP SMPSMP SMPSMP

38. New Variable Hour and Seasonal Employees: Average of <30 Hours of Service in IMP Employer may treat the employee as not being full- time during the associated Stability Period. The Stability Period : – Must not be more than one month longer than the IMP. – Must not exceed the remainder of the SMP (including any associated Administrative Period) in which the IMP ends. 38

39. Example: New Variable Hour Employee-Average of <30 Hours of Service in IMP 2015 2016 39 Initial MP June 1-May 31 Initial MP June 1-May 31 Standard MP Jan 1-Dec 31 Standard MP Jan 1-Dec 31 2. Employer may treat John as NOT full- time through Feb 28 (not June 30) Initial Admin Period= June 1-June 30 Standard MP Jan 1-Dec 31 2017 Initial Stability Period July 1-Feb 28 Initial Stability Period July 1-Feb 28 AP 1. If John is NOT full- time in the Initial MP then… 3. EXPLANATION: John’s hours of service will be measured in the SMP and if John is FT in the SMP, then he must be offered coverage in the Stability Period beginning March 1. APAP APAP Facts: John is a retail clerk with a start date of May 15, 2015. Stability Period Mar 1 to Feb 28

40. Transition from New Variable Hour Employee (or New Seasonal Employee) to Ongoing Employee When a new variable hour (or seasonal employee) has been employed an entire SMP, an employer must test the employee for full- time status during the SMP. Employee must be tested at the same time and under same conditions as Ongoing Employees. 40

41. Transition from New Variable Hour (or New Seasonal) Employee to Ongoing Employee: Average of at Least 30 Hours of Service Per Week in IMP or SMP An employer must treat the employee as full-time during the entire associated Stability Period. – Even if employee not employed an average of at least 30 hours of service per week during the SMP (overlapping or immediately following). 41

42. Example: Transition from New Variable Hour Employee to Ongoing Employee- Average of at Least 30 Hours of Service Per Week in IMP, but not SMP Standard MP Jan 1-Dec 31 2015 2016 42 Initial MP June 1-May 31 Initial MP June 1-May 31 Standard MP Jan 1-Dec 31 1. If John is determined to be full-time in Initial MP. Facts: John is a retail clerk with a start date of May 15, 2015. Stability Period AP AP AP AP AP Initial Stability Period July 1-June 30 Initial Stability Period July 1-June 30 2017 Stability Period AP Stability Period 3. Even if John was not full-time in SMP 2. Then he is treated as full- time in Initial Stability Period 4. Conclusion: Tribal Employer must offer coverage to John for Initial Stability Period to avoid an assessable payment. Admin Period= June 1-June 30

43. Transition from New Variable Hour (or New Seasonal) Employee to Ongoing Employee: Average of <30 Hours of Service Per Week in the IMP, but at Least 30 Hours of Service Per Week in the SMP An employer must treat the employee as full-time during the entire Stability Period associated with the SMP. – Even if the Stability Period starts before the end of the Stability Period associated with the IMP. 43

44. Example: Transition from New Variable Hour Employee to Ongoing Employee- Average of <30 Hours of Service Per Week in IMP, but at Least 30 Hours of Service Per Week in the SMP Standard MP Jan 1-Dec 31 2015 2016 44 Initial MP June 1-May 31 Initial MP June 1-May 31 Standard MP Jan 1-Dec 31 1. If John is not full-time during IMP but full-time during SMP then must treat as full- time in associated Stability Period. Facts: John is a retail clerk with a start date of May 15. Stability Period AP Initial Stability Period July 1-June 30 Initial Stability Period July 1-June 30 2017 Stability Period AP Stability Period 2. John treated as full-time in Stability Period associated with SMP. 3. Conclusion: Tribal Employer must offer John coverage in Stability Period associated with SMP to avoid an assessable payment

45. Change in Employment Status of a New Variable Hour (or New Seasonal) Employee If the position of a New Variable Hour (or Seasonal Employee) materially changes prior to the end of the IMP such that if the employee had begun employment in the new position or status, the employee would have reasonably been expected to be employed on average at least 30 hours of service per week, the employer is not required to treat the employee as full-time until: – The first day of the fourth month following the change in employment status, or, – If earlier, and the employee averages more than 30 hours of service per week during the IMP (including any associated Administrative Period), the first day of the first month following the end of the IMP. 45

46. 2015 2016 46 Initial MP May 10-May 9 Initial MP May 10-May 9 2. Dana must be treated as a full-time employee as of January 1. It is the first day of the fourth calendar month following her change in position. 2017 Stability Period July 1-June 30 Stability Period July 1-June 30 AP 1. Dana promoted on September 15. Example: Change in Employment Status of New Variable Hour Employee Facts: Dana was hired as a part-time File Clerk (variable hour employee) on May 10, 2015. On September 15, Tribal Employer promoted Dana to an Administrative Assistant position. Employer determines that had Dana begun her employment in this position, she would have reasonably been expected to work full-time. 3. Explanation: The first day of the calendar month after the end of the IMP and the Administrative Period is July 1, 2016 which is later than the first day of the fourth calendar month following the employment change. 4. Conclusion: Tribal Employer must offer coverage to Dana for period beginning January 1, 2016 to avoid an assessable payment.

47. Other Rules 47

48. Employees Rehired After Termination of Employment or Resuming Service An employee may be treated as having terminated employment and rehired as a new employee if the employee did not have an hour of service for: – a period of at least 26 consecutive weeks immediately preceding the resumption of services; or – a shorter period of at least four consecutive weeks that exceeds the number of weeks of the employee’s prior period of employment. (Rule of Parity) A continuing employee retains the status the employee had with respect to any applicable stability period. 48

49. Example: Employee Rehired After Termination If an employee works 5 weeks for an employer and the employee terminates employment and then is rehired by that employer 10 weeks after terminating employment, is the employee considered terminated and rehired? – Yes. Applying the Rule of Parity, the employee is considered a new employee because the 10 week period with no credited hours of service is longer than the immediately preceding 5 week period of employment. 49

50. Employment Break Period and Special Unpaid Leave Defined An employment break period is defined as period of at least four consecutive weeks, excluding special unpaid leave, where an employee of an educational organization is not credited with hours of service. Special unpaid leave, includes leave under the Family Medical Leave Act of 1993, Uniformed Services Employment and Reemployment Rights Act of 1994, and as a result of jury duty. 50

51. Averaging Method for Special Unpaid Leave and Employment Break Periods Look back measurement method as to an employee not treated as a new employee. An employer determines the employee’s average hours of service for a measurement period by: – Computing the average after excluding any special unpaid leave (and, excluding any employment break period) during that measurement period, and – Using the average for the entire measurement period. 51

52. Special Unpaid Leave and Employment Break Periods In the alternative, the employer may credit any hours of service for any periods of special unpaid leave (or an employment break period) during that measurement period at a rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not part of the period of special unpaid leave (or an employment break period). No more than 501 hours of service (excluding any special unpaid leave) during the employment break periods in a calendar year have to be excluded (or credited). Employers may use any reasonable method if applied on a consistent basis. 52

53. Nonpayment or Late Payment of Premiums An employer will not be treated as failing to offer a full-time employee (and his or her dependents) the opportunity to enroll in MEC under an eligible employee-sponsored plan: – If an employee’s coverage is terminated during the coverage period due to the employee’s failure to make a timely payment of the employee portion of the premium. Continues through the end of the coverage period. The regulations generally adopt COBRA provisions for purposes of payment and continuation of coverage. 53

54. Recommendations Determine whether you will determine full-time employees on a monthly basis or use the Look Back Measurement Method. If you use the Look Back Measurement Method, then you need to determine the length of your : – Standard Measurement Period(s), Administrative Period(s), and Stability Period(s) – Initial Measurement Period(s), Initial Administrative Period(s) and Initial Stability Period(s) 54

55. Section Review Name the two options to determine the full- time status of employees. How long can the Standard Measurement Period be for ongoing employees? How about the associated Stability Period? How long can the Initial Measurement Period be for New Variable Hour and New Seasonal Employees? How about the associated Stability Period? 55

56. Questions 56