What Counts as ACA Hours of Service? Paid Leave, FMLA, Jury Duty, and Military Leave

An employee does not have to be actively working for time to count toward full-time status under the Affordable Care Act.

Paid vacation, holidays, sick time, disability leave, jury duty, military leave, and other absences may need to be included in an employee’s ACA hours of service. Certain unpaid absences require special treatment as well.

That distinction matters because Applicable Large Employers generally must identify employees who average at least 30 hours of service per week or have at least 130 hours of service during a calendar month.

If an employer tracks only the hours an employee physically worked, the employee’s ACA average may be understated. That can lead to an incorrect eligibility determination, a missed offer of coverage, inaccurate Form 1095-C reporting, and potential exposure under the ACA Employer Shared Responsibility provisions.

The short answer

For ACA purposes, hours of service generally include:

• Hours an employee is paid or entitled to payment for performing work.
• Hours an employee is paid or entitled to payment when no work is performed because of vacation, holidays, illness, disability, layoff, jury duty, military duty, or another leave of absence.

Ordinary unpaid leave generally does not produce hours of service.

However, unpaid leave protected by the Family and Medical Leave Act, unpaid leave covered by the Uniformed Services Employment and Reemployment Rights Act, and unpaid jury-duty leave are classified as “special unpaid leave.” These absences receive special treatment when an employer uses the look-back measurement method.

The correct treatment depends on three questions:

1. Was the employee paid or entitled to payment?
2. What type of leave or absence occurred?
3. Does the employer use the monthly measurement method or the look-back measurement method for that employee?

Why ACA hours of service matter

Under the ACA Employer Shared Responsibility provisions, an employee is generally considered full-time for a calendar month if the employee averages at least 30 hours of service per week or has at least 130 hours of service during the month.

Employers may identify full-time employees using one of two methods:

• The monthly measurement method determines an employee’s ACA status separately for each calendar month.
• The look-back measurement method measures an employee’s hours during a prior measurement period and uses that result to determine the employee’s status during a later stability period.

Both methods begin with hours of service.

If the hours going into the calculation are incomplete, the resulting ACA status may also be incorrect.

What is an ACA hour of service?

An ACA hour of service generally includes each hour for which an employee is paid or entitled to payment for performing duties for the employer.

It also includes certain hours for which the employee is paid or entitled to payment even though no duties are performed.

That second part is frequently overlooked.

For example, an employee who works 112 hours during a month and uses 24 hours of paid vacation may have 136 hours of service for that month—not 112.

The employee did not physically work the vacation hours, but the employee was paid or entitled to payment for that time. Those hours generally belong in the ACA calculation.

Which work and leave hours count under the ACA?

The following table provides a general starting point.

Type of time	General ACA treatment
Regular, overtime, or other paid working hours	Count
Paid vacation, holidays, sick time, or other paid leave	Generally count
Ordinary unpaid personal leave, furlough, or layoff	Generally does not count
Unpaid FMLA, USERRA military leave, or jury duty	Special treatment under the look-back method
Disability or workers’ compensation leave	Depends on the payment arrangement
Federal Work-Study and qualifying volunteer service	Generally excluded

This table is a general guide. The type of leave, source of payment, employee’s status, and applicable measurement method can change the result.

Paid leave generally counts as ACA hours of service

One of the most common ACA tracking mistakes is importing only worked hours from a timekeeping system.

ACA hours are not necessarily the same as clocked hours.

When an employee is paid or entitled to payment for a period during which no duties are performed, the time may still count as hours of service. Common examples include:

• Vacation
• Paid time off
• Holidays
• Sick leave
• Paid parental leave
• Paid jury duty
• Paid military leave
• Certain paid leaves of absence
• Certain periods of disability

Employers should review how these hours are identified in payroll. A leave code that appears as compensation on a pay statement may not automatically flow into the system used for ACA measurement.

Gross pay alone may not provide enough information. Employers generally need records showing the number and type of hours associated with each payment.

Ordinary unpaid leave generally does not produce hours of service

When an employee performs no work and is not paid or entitled to payment, the absence generally does not create ACA hours of service.

Examples may include:

• Unpaid personal leave
• An unpaid furlough
• An unpaid layoff
• An unprotected unpaid medical leave
• An unauthorized unpaid absence
• Other unpaid time that does not qualify as special unpaid leave

Under the look-back measurement method, weeks with no hours may lower the employee’s average for the measurement period.

That does not necessarily mean the employee immediately loses full-time status or coverage.

If an employee was already determined to be full-time and is in a stability period, the employee generally remains full-time for ACA purposes through that stability period, provided the employee remains employed and the applicable look-back rules continue to apply. The absence may instead affect the measurement period used to determine the employee’s status for a future stability period.

Employers must evaluate the measurement period, stability period, plan terms, leave protections, and coverage obligations together.

What is special unpaid leave under the ACA?

“Special unpaid leave” is a defined ACA term. It does not refer to every unpaid absence that an employer considers unusual or important.

Special unpaid leave generally includes:

• Unpaid leave subject to the Family and Medical Leave Act.
• Unpaid leave subject to the Uniformed Services Employment and Reemployment Rights Act.
• Unpaid leave because of jury duty.

These categories receive special treatment so that a protected unpaid absence does not improperly reduce an employee’s average under the look-back measurement method.

A general unpaid personal leave, non-FMLA medical leave, or voluntary absence does not become special unpaid leave merely because the employer approves it.

How special unpaid leave works under the look-back measurement method

When special unpaid leave occurs during a measurement period and the employee returns as a continuing employee, the employer generally has two ways to perform the calculation.

Option 1: Exclude the special unpaid leave

The employer can calculate the employee’s average after excluding the weeks of special unpaid leave from the measurement period.

The employee’s average during the remaining weeks is then used as the average for the measurement period.

Option 2: Credit the leave using the employee’s average

Alternatively, the employer can credit the special unpaid leave period using the employee’s average weekly hours during the weeks that were not part of the special unpaid leave.

The two methods are intended to produce an equivalent result.

The practical purpose is to prevent unpaid FMLA, USERRA, or jury-duty leave from artificially lowering the employee’s measurement-period average.

Example: Unpaid FMLA leave during a measurement period

Assume an employer uses a 52-week look-back measurement period.

During that period, an employee:

• Averages 32 hours per week for 40 active weeks.
• Takes 12 weeks of unpaid FMLA leave.
• Returns to work as a continuing employee.

During the 40 active weeks, the employee earns 1,280 hours of service.

If the employer simply divides 1,280 by all 52 weeks, the result is approximately 24.6 hours per week. That calculation would improperly treat the employee’s unpaid FMLA leave as ordinary zero-hour weeks.

Using the exclusion method, the employer divides 1,280 hours by the 40 weeks that were not special unpaid leave. The employee’s average is 32 hours per week.

Using the crediting method, the employer credits the employee with the 32-hour weekly average for each of the 12 FMLA weeks. The employee’s average for the full measurement period is again 32 hours per week.

Under either approach, the special unpaid leave does not reduce the employee’s average below the ACA full-time threshold.

Does special unpaid leave work the same way under the monthly measurement method?

N o.

The special averaging rule for unpaid FMLA, USERRA, and jury-duty leave applies under the look-back measurement method. It does not apply under the monthly measurement method.

Under the monthly measurement method, the employer determines the employee’s ACA status using the hours of service credited for that calendar month. An employee on unpaid leave may consequently have fewer ACA hours during the month.

That does not eliminate obligations imposed by other laws.

For example, the FMLA generally requires a covered employer to maintain an eligible employee’s group health benefits during FMLA leave under the same conditions that would have applied if the employee had continued working.

USERRA, COBRA, applicable state laws, and the employer’s plan terms may create additional rights or responsibilities. ACA measurement rules should not be used as a substitute for a complete benefits and leave analysis.

Paid FMLA leave and unpaid FMLA leave are different

FMLA leave may be unpaid, or an employee may use employer-provided paid leave at the same time as FMLA leave.

That difference matters for ACA tracking.

If the employee uses paid vacation or paid sick leave during an FMLA absence, those paid hours generally count under the normal ACA hours-of-service rule.

If the FMLA absence is unpaid, it may qualify for the special unpaid leave calculation under the look-back measurement method.

Employers should avoid using one payroll code for every FMLA absence without identifying whether each portion was paid or unpaid.

Military-related leave requires careful classification

Paid military leave generally counts as hours of service because the employee is paid or entitled to payment while performing no duties for the employer.

Unpaid military leave receives special treatment under the look-back measurement method when it is subject to USERRA.

Not every absence involving a military member is necessarily USERRA leave. For example, an employee taking time away from work because a family member is deployed may instead be using FMLA qualifying-exigency leave.

Employers should identify the law and leave category that apply rather than relying only on a general “military leave” payroll code.

ACA hours are not the same as the FMLA 1,250-hour test

The ACA and the FMLA both use the phrase “hours of service,” but they apply it for different purposes.

For ACA full-time status, paid vacation, paid sick leave, holidays, and other paid absences may count as hours of service.

For an employee to satisfy the FMLA’s general 1,250-hour eligibility requirement, the Department of Labor generally counts hours actually worked. Paid and unpaid leave generally do not count toward that 1,250-hour requirement.

An employer should not use its FMLA eligibility calculation as the employee’s ACA hours calculation—or vice versa.

How should employers count hours for salaried employees?

Hourly employees generally must be credited using actual records of hours worked and hours for which payment is made or due.

For employees who are not paid on an hourly basis, employers generally may use:

• Actual hours of service.
• A days-worked equivalency that credits eight hours for each day in which the employee has at least one hour of service.
• A weeks-worked equivalency that credits 40 hours for each week in which the employee has at least one hour of service.

An employer may use different methods for reasonable categories of non-hourly employees if the categories and methods are applied consistently.

An equivalency method cannot be used when it would substantially understate an employee’s hours.

For example, an employee who regularly works three 10-hour days has 30 hours of service per week. Crediting only eight hours per day would produce 24 hours and could improperly classify the employee as not full-time.

What about on-call employees and other difficult-to-track workers?

Some employees perform work that is not easily reflected in a traditional timecard.

Examples include:

• Adjunct faculty
• Commissioned salespeople
• Employees with on-call responsibilities
• Airline employees with layover time
• Employees whose work includes required preparation, travel, or after-hours activity

The IRS generally requires employers to use a reasonable method of crediting hours that is consistent with the Employer Shared Responsibility provisions.

A method is not reasonable if it excludes time the employer knows is part of the employee’s required work or substantially understates the employee’s service.

These employees should not be assigned zero or reduced ACA hours merely because the employer’s payroll system does not have a convenient field for recording the work.

Do disability and workers’ compensation payments create ACA hours?

The answer depends on the arrangement.

IRS Notice 2015-87 explains that short-term or long-term disability payments may produce hours of service while the recipient remains an employee if the payments come from an arrangement to which the employer contributed directly or indirectly.

Payments from an arrangement funded entirely through the employee’s after-tax contributions generally do not produce ACA hours under that rule.

State or local government workers’ compensation wage-replacement benefits generally do not produce ACA hours of service. Payments made under a plan maintained solely to comply with workers’ compensation, unemployment, or disability-insurance laws may also be excluded.

Because funding arrangements vary, employers should not classify every period of disability or workers’ compensation leave the same way without reviewing the source of the payment.

Common ACA hours-of-service mistakes

Employers frequently create inaccurate results by:

• Importing worked hours while omitting paid leave.
• Treating every unpaid leave as a zero-hour absence.
• Treating every unpaid medical leave as special unpaid leave.
• Applying the special unpaid leave rule under the monthly measurement method.
• Failing to distinguish paid FMLA time from unpaid FMLA time.
• Assuming every military-related absence is covered by USERRA.
• Using an equivalency method that understates a non-hourly employee’s service.
• Treating disability payments the same regardless of how the arrangement is funded.
• Confusing ACA hours with the FMLA 1,250-hours-worked requirement.
• Allowing payroll, leave, benefits, and ACA records to use conflicting classifications.

Most of these problems begin long before Forms 1094-C and 1095-C are prepared.

What employers should review each month

Accurate ACA tracking requires more than a total-hours column.

Employers should regularly review:

• Worked and overtime hours.
• Paid vacation, sick time, holidays, and PTO.
• Paid and unpaid portions of FMLA leave.
• USERRA-covered military leave.
• Jury-duty leave.
• Disability and workers’ compensation payment sources.
• Employee status during each absence.
• Applicable measurement and stability periods.
• Employees returning from extended absences.
• Leave codes that do not flow from payroll into the ACA system.
• Hours worked across related employer entities.

A payroll file may be accurate for wage-payment purposes while still being incomplete for ACA measurement purposes.

Frequently asked questions about ACA hours of service

Does paid vacation or PTO count toward ACA hours?

Generally, yes. Hours for which an employee is paid or entitled to payment because of vacation or another paid leave of absence generally count as ACA hours of service.

Does paid sick leave count toward ACA hours?

Generally, yes. Paid time away from work because of illness or incapacity generally counts. Unpaid sick leave does not ordinarily produce hours unless it qualifies for special treatment, such as unpaid FMLA leave under the look-back method.

Does unpaid FMLA leave count toward ACA hours?

Under the look-back measurement method, unpaid FMLA leave is special unpaid leave. For a continuing employee, the employer generally must either exclude the leave when calculating the average or credit the leave using the employee’s average weekly hours from the non-leave weeks.

The special averaging rule does not apply under the monthly measurement method.

Does jury duty count toward ACA hours?

Paid jury-duty time generally counts under the normal hours-of-service rule. Unpaid jury-duty leave qualifies as special unpaid leave under the look-back measurement method.

Does military leave count toward ACA hours?

Paid military leave generally counts. Unpaid military leave subject to USERRA is special unpaid leave under the look-back measurement method.

Is there a 501-hour limit on paid leave credited under the ACA?

There is no general 501-hour limit on otherwise qualifying hours of service under Section 4980H. IRS Notice 2015-87 clarified this point.

A separate 501-hour limitation can apply to certain employment-break-period rules for educational organizations, but that limitation does not apply to special unpaid leave.

Can an employer credit every salaried employee with 40 hours per week?

The weeks-worked equivalency is one permitted method for non-hourly employees. However, it must be applied consistently to reasonable employee categories and cannot be used if it substantially understates employees’ actual hours of service.

Does unpaid leave automatically end an employee’s health coverage?

Not necessarily. The result may depend on the employee’s ACA measurement method, current stability period, benefit-plan terms, FMLA or USERRA protections, COBRA obligations, and other applicable laws.

An unpaid absence and an employment termination are not the same event.

The bottom line

ACA eligibility begins with accurate hours of service.

The hours an employee physically worked are only part of the calculation. Paid time away from work may count. Ordinary unpaid leave generally does not. Unpaid FMLA, USERRA, and jury-duty leave can require special treatment under the look-back measurement method.

The distinction affects employee eligibility, coverage offers, stability-period treatment, and the information eventually reported on Form 1095-C.

Employers should not wait until year-end reporting to discover that payroll omitted a leave code, an unpaid protected absence was averaged incorrectly, or a salaried employee’s hours were understated.

ACA compliance is monthly work.

ACA 360 helps employers monitor employee hours, administer measurement and stability periods, review leave and status changes, identify coverage deadlines, and prepare accurate ACA filings throughout the year.

Not sure whether your payroll and leave data are producing the correct ACA hours? Ask an ACA 360 expert.

Official Sources

Internal Revenue Service. Identifying Full-Time Employees.
https://www.irs.gov/affordable-care-act/employers/identifying-full-time-employees

Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.
https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act

Electronic Code of Federal Regulations. 26 CFR §54.4980H-1—Definitions.
https://www.ecfr.gov/current/title-26/section-54.4980H-1

Electronic Code of Federal Regulations. 26 CFR §54.4980H-3—Determining Full-Time Employees.
https://www.ecfr.gov/current/title-26/section-54.4980H-3

Internal Revenue Service. Notice 2015-87—Additional Guidance on Employer-Provided Health Coverage.
https://www.irs.gov/pub/irs-drop/n-15-87.pdf

Internal Revenue Service. Instructions for Forms 1094-C and 1095-C.
https://www.irs.gov/instructions/i109495c

U.S. Department of Labor. Family and Medical Leave Act Frequently Asked Questions.
https://www.dol.gov/agencies/whd/fmla/faq

This article is provided for general informational purposes only and does not constitute legal or tax advice. Employers should consult with qualified legal or tax counsel regarding their specific facts and circumstances.