What determines if a company is an Applicable Large Employer?

A company is an Applicable Large Employer if it has 50 or more full-time employees or full-time equivalents in the prior calendar year. This designation subjects the company to ACA’s employer shared responsibility rules.

How is a full-time employee defined for ACA purposes?

A full-time employee is someone who averages at least 30 hours of service per week or 130 hours per month. This definition is used to determine eligibility for employer health coverage offers.

What is a full-time equivalent employee and how is it calculated?

Full-time equivalent employees (FTEs) are calculated by adding together the hours worked by part-time employees (up to 120 hours per employee per month) and dividing by 120. This helps account for part-time workers when determining ALE status.

Why must businesses continue to track hours of part-time and variable-hour employees?

Accurate tracking of hours worked by part-time and variable-hour employees is necessary to assess their eligibility for health coverage under ACA rules, helping avoid penalties and proving compliance during audits.

What are the consequences of not meeting ACA employer obligations?

Employers who fail to offer required coverage or do not comply with ACA reporting requirements risk significant financial penalties and IRS enforcement actions.

How does ACA-Track simplify compliance for businesses that are ALEs?

ACA-Track provides integrated tracking of employee hours, automated calculation of FTEs, eligibility monitoring, and generates accurate ACA reports for IRS filing. It streamlines ACA compliance and reduces the risk of penalties.

How to Know If Your Business Qualifies as an Applicable Large Employer

How to Tell If Your Business Qualifies as an Applicable Large Employer

Navigating the Affordable Care Act (ACA) requirements can be complex for many businesses. A critical starting point is understanding whether your company qualifies as an Applicable Large Employer (ALE), because this designation carries important health coverage obligations under the ACA. This blog post will walk you through how to determine if your business is an ALE, explain why it matters, and highlight how a trusted ACA compliance partner like ACA-Track can help simplify this process.

What is an Applicable Large Employer (ALE)?

An Applicable Large Employer is a company that employs 50 or more full-time employees, including full-time equivalent employees (FTEs). ALE status determines if your company is subject to ACA’s employer shared responsibility provisions, which require offering affordable, minimum value health insurance coverage to full-time employees (and their dependents), or else potentially facing penalties.

How to Calculate If Your Business Is an ALE

Step 1: Count Your Full-Time Employees

A full-time employee, according to the ACA, is someone who works:

On average, 30 hours or more per week, or
At least 130 hours per month

If your business has 50 or more such employees, you likely are an ALE.

Step 2: Calculate Full-Time Equivalent Employees (FTEs)

FTEs are calculated by combining the hours worked by part-time and variable hour employees (up to 120 hours per employee per month), then dividing the total by 120.

For example, if you have:

40 full-time employees, plus
20 employees who each worked 60 hours in a month (total 1,200 hours),

You would calculate FTEs as follows:

1,200 hours ÷ 120 = 10 FTEs
Total full-time employee count = 40 + 10 = 50 employees

In this example, you would be an ALE.

Why ALE Status Matters

If your business qualifies as an ALE, you are legally obligated to:

Offer health insurance that meets ACA standards to full-time employees and their dependents,
Report your coverage offers and enrollments annually to the IRS, and
Avoid or face penalties if you fail to comply.

Non-compliance can result in significant fines, including:

Penalties up to $2,000 per full-time employee (excluding the first 30), and
Additional fees for filing ACA reports late or with errors.

Why Tracking Actual Hours Worked is Crucial

For part-time and variable hour employees, tracking actual hours worked is essential. This data determines whether those employees reach full-time status during ACA measurement periods and are thus eligible for coverage.

Failing to track hours can expose your business to:

Penalties if an employee obtains a Marketplace subsidy because you didn’t offer coverage, and
Difficulty defending your compliance status in an IRS audit.

Which Departments Manage ACA Compliance?

ACA compliance data spans multiple departments:

Payroll: Tracks hours worked and compensation data,
Human Resources: Manages employee status, hire and termination dates, and coverage eligibility,
Benefits: Oversees health insurance offers and waivers, and
Finance: Manages tax filings and budget impacts.

Collaborative efforts are vital for successful ACA compliance management. Many companies assign responsibility to the CFO, HR Director, or Benefits Manager.

Simplifying ACA Compliance with ACA-Track

Given the complexities involved, many companies turn to specialized ACA compliance services for assistance. One standout solution is ACA-Track, which offers:

Comprehensive ACA compliance tracking: Captures hours worked for all employee types—full-time, part-time, variable hour, and substitutes—across multiple data sources (payroll, timekeeping systems, manual entries).
Real-time eligibility monitoring: Tracks employee eligibility thresholds and alerts you in advance of any changes, including waivers and leaves.
Automated federal and state reporting: ACA-Track produces IRS Forms 1094-C and 1095-C and supports electronic XML filing, helping you avoid penalties for late or incorrect filings.
Monthly line code audits: Ensures accuracy and compliance of all reporting data.
User-friendly customizable dashboards: Helps you sort, filter, and analyze ACA data easily with color-coded warnings for errors or anomalies.
Secure cloud-based platform: Data encryption, HIPAA-safe practices, and compliance with SSAE 16 and SOC 2 Type 2 standards protect your sensitive employee data.

ACA-Track even assigns a dedicated Client Success Advisor to guide you every step of the way, making ACA compliance easier and less stressful.

Key Takeaways

If your business employs 50 or more full-time employees (including FTEs), you are an ALE and subject to ACA employer mandates.
Accurately tracking all employee hours worked—including part-time and variable hour employees—is crucial to determining coverage obligations.
Collaboration across payroll, HR, benefits, and finance departments is essential for accurate ACA reporting and compliance.
Partnering with a trusted ACA compliance solution like ACA-Track can help you automate data collection, eligibility monitoring, reporting, and reduce the risk of costly penalties.

Final Thought

ACA compliance isn’t just a regulatory hurdle—it’s a significant responsibility with potential financial consequences. Early identification of your ALE status and implementing robust tracking and reporting systems will safeguard your business and employees.

Explore how ACA-Track can help your company streamline ACA compliance through proven technology and dedicated support. Take control of your ACA obligations today!