As an employer, did you know the average size of your workforce last year can affect your ALE status for Affordable Care Act compliance for 2019?
According to the ACA, employers must determine their Applicable Large Employer (ALE) status each calendar year based on the average size of their workforce during the prior year. Maybe your company was not an ALE in 2016 when the ACA was first mandated, but your company has since expanded. Or, perhaps your company WAS an ALE in 2016, however now you have reduced your number of full-time workers.
Regardless, now is a good time to revisit the rules and regulations governing the distinction of an ALE versus a non-ALE.
Why all the fuss about being an ALE?
ALEs are required to offer minimal essential health coverage that provides minimum value at an affordable cost to their full-time employees or be subject to a penalty under the Employer Shared Responsibility provisions of the ACA. Given that, employers must understand how ALEs are determined, as well as the definitions of ACA terms such as “minimum essential,” “minimum value,” and “affordable,” to name a few. Additionally, each ALE is required to report specific information to the Internal Revenue Service (IRS) annually about their employees and health insurance offers.
Definition of Applicable Large Employer
Determining ALE status is simple, yet some of the exceptions and the regulatory fine print can get complicated. So, here’s the skinny: if an employer has a monthly average of 50 or more full-time and/or full-time equivalent employees in the previous calendar year, that employer is an Applicable Large Employer (ALE) for the current calendar year.
Sounds pretty simple, right? Read on.
Number crunching to count full-time workers
The most important step in determining if you are an ALE is to understand the definition of a “full-time worker.” It’s not just your 40-hour week workers. According to the ACA, full-time employees are employees who work on average at least 30 hours per week or greater than, or equal to 130 hours in any month. Full-time equivalents (FTEs) are calculated by taking the hours worked by all part-time employees in a given month and dividing that amount by 120 (each employee is capped at 120 hours for the month). For each month, both categories are added together to determine the total number of full-time employees. To keep up with the accurate number of FTEs, employers should track and count the number of hours of service for ALL employees that are NOT full-time for every month. See how things can get complicated? And, if you employ seasonal workers, there is a Seasonal Worker Exclusion. Click here for a more complete explanation.
Classifying workers: employee or independent contractor?
Another consideration of importance in determining ALE status is making sure you are correctly classifying workers as independent contractors (receiving a 1099) or employees (receiving a W-2). The ACA requirements pertain only to an employee, not an independent contractor, so that seems simple enough. The employer, however, must be correctly classifying the workers. If your company has misclassified an employee, it could mean additional full-time workers, which could push your company numbers into the ALE status.
So are you an ALE or not?
If you are still unsure about your ALE status, use PSST’s ACA-Track™ FTE calculator to determine if you are an ALE or not.