Employees are highly important to classify due to the fact that some employees trigger requirements under PPACA, and others do not. Knowing on which employees to focus will save employers time and efforts that will otherwise not save money. By “employer” we mean “applicable large employer,” or an employer subject to the employer mandates. Knowing how to take advantage of various employee classifications will assist the employer in better managing eligibility for the health plan, which will drive down costs.

Employees fall into one of the following general classifications:

Special rules, some of which have been issued by the federal government, empower employers to control employee classification to a certain extent. These rules include the look-back measurement method and break-in service rules.

What is a Leased Employee?

A leased employee is not actually an employee of the employer. Leased and co-employment arrangements permit an employer to hire full-time levels of hourly contribution without exposure to PPACA obligations. Leased employees can be an effective means of growing a business without additional legal burdens so long as the cost of leasing the employee is less than the cost of said legal burdens. 

Break In Service

Building off the 13-month new hire measurement, employers may chain 13-month measurements if at least a 13-week break-in service occurs in between each measurement. New regulations permit employers to treat employees who have a break in service of at least 13 weeks as newly hired when the employee returns to work. The break in service may be employer or employee initiated under the current rules. Thus, in some cases, coverage could be delayed or denied altogether by aggressive use of this rule.


Knowing which employees require coverage can save an employer from potentially enormous excise tax penalties. Beyond this knowledge, however, knowing how to control eligibility to the greatest extent permitted under the law will permit employers to deny or delay coverage and control eligibility to either maintain maximum efficiency for the health plan or permit only employees the employer wishes to incentivize eligibility into a sponsored health plan. Thus, all employers are encouraged to classify every employee, either by status or through the look-back measurement method.

LBMC can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.

External PPACA Resources: