Are you an applicable large employer (ALE) subject to the employer mandate under the Affordable Care Act (ACA)? If you have 10 employees, you know you’re not, but if you are nearing the critical number of 50, you need to understand what this term means, whether it applies to you, and what the obligations of being an ALE are.
The Affordable Care Act (ACA) created a new term for employers that are subject to the employer mandate; it’s called an Applicable Large Employer (ALE). It’s based on the number of fulltime or fulltime equivalent employees and has nothing to do with revenues, assets, or any other benchmarks.
What is an Applicable Large Employer?
An ALE is an employer with 50 or more fulltime or fulltime equivalent employees. Employees for this purpose include full-time employees and full-time equivalent employees (FTEs). There are special rules under ACA for determining an ALE, so don’t make assumptions.
- Full-time employees. Whether a worker is a full-time employee is not based on hours worked; it is figured on hours of service. For ACA purposes, this is 130 hours per month, which is about 30 hours a week.
- FTEs. Add the hours of part-timers and divide by 120. For example, you have three part-timers who work 20 hours a week (80 hours a month). Their hours total 240 per month. Divided by 120, you have 2 FTEs.
What hours are taken into account for counting a worker? It’s not only hours on the job. It includes hours for which an employee is paid or entitled to be paid, even if no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence.
You can exclude seasonal workers under certain conditions. If your workforce only exceeds 50 full-time employees (including full-time equivalents) for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days are seasonal workers, you are not considered an ALE.
Aggregation. If you own more than one business, the number of employees must be aggregated for ACA purposes. Thus, if you have 35 employees in a store and 28 in a restaurant, you’re an ALE even though no business has 50 or more employees.
Timing for counting employees. Whether you are an ALE in 2016 depends on your staffing in 2015. For companies that are newly formed (not in existence in the prior year), ALE determination is based on the average number of employees that it is reasonably expected that such employer will employ on business days in the current calendar year.
Consequences of being an ALE
If you’re an ALE, you have two responsibilities:
- Meeting the employer mandate, which requires you to offer affordable health care coverage to your full-time employees and their dependents (up to age 26);
- Providing information returns (Form 1095-C) to employees detailing their health coverage (or lack of coverage) for the year.
There are different penalties for failing to meet each of these obligations. The penalty for not offering health coverage to those with 50 to 99 employees was waived for 2015; there is no waiver for 2016. Even though this penalty was waived for ALEs of this size, there is no waiver for the requirement of providing information returns. The deadline for doing this for 2015 coverage is March 31, 2016.
Vic Saliterman, Senior VP and General Manager of Health Care Reform at ADP, said on my radio show on February 16 that small businesses on the cusp should determine whether they are ALEs for 2016. If so, they must track certain information monthly in order to properly complete the information return for 2016. They must also respond in a timely manner to any Employer Notice from the Federally-Facilitated Marketplace regarding an employer’s obtaining coverage from the Healthcare.gov (the federal exchange or states using the federal exchange), and the premium tax credit to help pay for it. Employers have 90 days from the notice to appeal (i.e., that affordable coverage was offered). If no appeal is made or if an appeal is unsuccessful, the employer is penalized.