Protecting You From ACA Penalties:
Variable Hour Experts
Managing variable hour employees is one of the most misunderstood and mismanaged areas of ACA compliance — and one of the most common reasons employers face IRS penalties.
At ACA 360, we specialize in tracking and managing these high-risk employee
populations with precision, so you don’t have to.
What is a Variable Hour Employee?
When it comes to ACA compliance, classification isn’t just semantics — it’s the difference between compliance and costly penalties.
Definition Under the ACA
IRS Classifications Matter
A variable hour employee is someone who, at the time of hire, you cannot reasonably determine will work at least 30 hours per week on average. The uncertainty of their schedule, role, or work assignment prevents a clear full-time or part-time classification.
This definition matters because it determines which method — monthly vs. look-back — you may legally use to track their ACA eligibility for health coverage.
Why Accurate Classification Is Critical
The IRS recognizes four key employee classifications under the ACA:
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Full-Time: Expected to work 30+ hours per week (or 130+ hours/month).
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Part-Time: Not expected to average 30+ hours weekly.
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Variable Hour: Schedule is uncertain at the time of hire.
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Seasonal: Hired into a position for 6 months or less during a specific season or time of year.
Each classification carries unique obligations under IRC Section 4980H (Employer Shared Responsibility Provisions). Misclassifying employees can expose you to retroactive penalties, especially if health coverage was not offered when it should have been.
Failing to correctly classify a variable hour employee at the time of hire can lead to:
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Ineligible use of the look-back measurement method
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Missed coverage offers to employees who become full-time
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Exposure to both 4980H(a) “no offer” and 4980H(b) “unaffordable/inadequate offer” penalties
ACA 360 clients gain the peace of mind of knowing every employee is accurately classified and tracked from day one — with eligibility monitored on a rolling basis.
Pro Tip from ACA 360
Incorrectly classifying a variable hour employee as part-time or exempt could trigger both 4980H(a) and (b) penalties if the employee works full-time hours and receives a premium tax credit.
Hidden Risks of Mismanaging Variable Hour Employees
Many employers don’t realize that their greatest ACA liability is hiding in plain sight — their variable hour workforce.
Without a consistent tracking strategy, these employees can quietly cross the full-time eligibility threshold, and when no offer of coverage is made, the IRS steps in with penalties.
Common Mistakes That Trigger ACA Penalties
Assuming short-term or low-hour employees are always exempt
If an employee’s average hours creep above 30/week — even temporarily — you may owe a penalty for not offering coverage.
Failing to implement the look-back measurement method
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The IRS provides this method to give employers flexibility with variable schedules — but it must be used correctly and consistently.
Relying solely on payroll or scheduling systems
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Most payroll platforms can report hours but do not monitor eligibility in accordance with IRS rules.
Not offering coverage during the stability period
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If an employee is deemed full-time after a measurement period, they must be offered benefits during the entire stability period — even if their hours drop.
Real Exposure: Letters 226-J & 5699
ACA audits and penalty letters are most commonly triggered by:
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Employees classified incorrectly at hire
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No offer of coverage when required
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Inconsistent application of ACA tracking methods
Once a premium tax credit is granted to just one misclassified employee, the IRS can issue a Letter 226-J assessing tens of thousands in penalties under Sections 4980H(a) or (b).
How ACA 360 Protects You
At ACA 360, we specialize in the gray areas other providers miss. Our team monitors eligibility in real time and applies the look-back method accurately, ensuring your variable hour employees never become a compliance blind spot.
Pro Tip from ACA 360
You can’t afford to guess. If you’re not actively applying the look-back method and monitoring hours monthly, you are likely noncompliant — and may not know until the IRS sends a letter.
Our Process - Full Circle Variable Hour Managment
Managing variable hour employees under the ACA requires more than just tracking hours — it demands consistency, documentation, and a proactive eligibility strategy. That’s where ACA 360 comes in.
Our Full Circle Management Process is designed to take the burden off your internal team and eliminate the risk of noncompliance.
How ACA 360 Does It
Step 1: Real-Time Hour Monitoring
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Hours tracked on a rolling monthly basis
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Clear visibility into each employee’s trending status
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Proactive alerts when employees approach the full-time threshold
Step 3: IRS Look-Back Method Administration
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Accurate tracking across:
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Initial Measurement Period
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Administrative Period
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Stability Period
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Documentation maintained to substantiate compliance in the event of an audit
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Automatic stability period protection for qualifying employees
Step 2: Eligibility Reporting
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Monthly reports flagging employees who may become eligible
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Summary views for management and compliance teams
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Optional delivery to benefits brokers for coordinated outreach
Why Our Process Works
Unlike generic payroll tools or ACA add-ons, ACA 360 uses a compliance-first model:
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Purpose-built to follow IRS guidelines
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Backed by human oversight — not just automation
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Designed for high-turnover industries and complex schedules
Pro Tip from ACA 360
If you don’t document every step of your measurement method — including the start date, calculation logic, and offer timing — you’ll be vulnerable in an IRS audit, even if your intent was compliant.
Who Benefits From This Service
If your workforce includes part-time, seasonal, or rotating-hour employees, you may already be at risk of ACA penalties — whether you realize it or not.
ACA 360’s Variable Hour Management service is designed for employers with complex staffing needs, inconsistent scheduling, and limited internal compliance resources.
Industries We Support
🍔 Franchise Groups (Restaurants, Quick Service, Retail)
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High turnover and unpredictable schedules
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Managers unsure how to classify employees at hire
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Commonly miss eligibility windows due to lack of ACA tracking
🛠 Staffing Agencies & Contract Employers
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Multiple placements with varying hours and durations
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Unclear eligibility due to unpredictable assignments
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Exposure grows rapidly across dozens or hundreds of employees
🧑⚕️ Healthcare & Senior Care Facilities
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Per diem and PRN staff with fluctuating hours
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Risk of full-time status without consistent coverage offers
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Often audited due to 1095 discrepancies and premium tax credits
🚌 Transportation & School Service Providers
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Drivers off during summer or holidays but still eligible
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Multiple employment types: salaried, hourly, variable
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Common Letter 226-J recipients due to tracking failures
🧪 Manufacturing & Light Industrial
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Swing shifts and demand-driven schedules
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Minimal HR compliance infrastructure
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Payroll systems not aligned with ACA measurement rules
Pro Tip from ACA 360
The IRS doesn’t adjust expectations based on your industry. Whether you're a small franchise or a multi-site care provider, you’re expected to track ACA eligibility with precision. Our clients don’t leave that to chance.
Results You Can Trust
At ACA 360, we don’t just track hours — we protect our clients from avoidable penalties, time-consuming audits, and last-minute compliance scrambles.
Whether you’ve already received a Letter 226-J or simply want to stay ahead of risk, our variable hour management service has a proven track record of success.
Quick Service Restaurant Avoids 4980H(a) Penalty
"ACA 360 reconstructed our payroll and was able to determine that we were not in-fact an ALE (Applicable Large Employer). They submitted all the required paperwork and evidence to the IRS. Several months later we received a confirmation from the IRS closing the 2021 tax year and releasing us from all ESRP (Employer Shared Responsibility Payment) Penalties.
Without ACA 360 we would have had to pay thousands of dollars in penalties and possibly had to close one of our new locations putting our employees out of a job.
ACA 360 saved our business!"
-Owner, Local Restaurant, Columbus, OH
Pro Tip from ACA 360
Don’t wait until a 226-J arrives. If you’re unsure how your payroll or HR system is handling variable hour tracking, you’re likely not covered. A review with ACA 360 can change that.
Don’t Let ACA Penalties Catch You Off Guard
Even if you’ve never received an IRS letter, you may still be out of compliance. Most penalties are triggered long before you realize there’s a problem. With ACA 360, you don’t have to wait for the fallout.
Let Us Take the Guesswork Out of Compliance
Our Variable Hour Management solution gives you:
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Accurate classification of every employee
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Ongoing tracking using the IRS look-back method
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Monthly reporting and alerts when action is needed
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Annual 1095-C support that reflects true eligibility
Pro Tip from ACA 360
Until recently, the IRS had no time limit to assess ACA penalties for past reporting years—meaning employers could receive a penalty notice at any time for filings from 2023 and earlier.
Starting with the 2024 reporting year, a new federal law now limits the IRS to a six-year window for assessments. This is great news for employers—but only moving forward. If your past ACA filings had errors or omissions, you may still be at risk.
Don’t leave old years unchecked—ACA 360 can help you audit and protect your history.