How do I know if my company is an Applicable Large Employer (ALE)?

A company is considered an ALE if it employs 50 or more full-time employees, including full-time equivalents, during the prior calendar year. Full-time equivalents combine part-time employee hours to determine if the total workforce size meets the 50-employee threshold.

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

For ACA compliance, a full-time employee is someone who works an average of at least 30 hours per week or 130 hours per month. Employers must carefully track actual hours worked, especially for part-time and variable-hour employees, to determine full-time status.

What penalties can employers face for non-compliance with the Shared Responsibility Provision?

Employers who fail to offer affordable, minimum value coverage to full-time employees or do not report coverage correctly may face penalties up to $2,000 per full-time employee annually, excluding the first 30 employees. Additionally, penalties for late or incorrect ACA reporting can also apply.

How can ACA-Track help my company comply with the Employer Shared Responsibility Provision?

ACA-Track automates employee hour tracking, calculates full-time equivalents, and generates accurate 1094-C and 1095-C forms for IRS filing. It monitors eligibility thresholds, provides alerts for compliance deadlines, and securely maintains all ACA data for easy retrieval during IRS audits.

Understanding the Employer Shared Responsibility Provision: What Employers Need to Know About ACA Compliance

The Affordable Care Act (ACA) has transformed the way many businesses approach employee health coverage. One critical component that employers must navigate is the Employer Shared Responsibility Provision—a key regulation that affects Applicable Large Employers (ALEs). If your company has 50 or more full-time or full-time equivalent employees, understanding this provision is essential to avoid costly penalties and ensure compliance.

In this comprehensive guide, we’ll unpack what the Employer Shared Responsibility Provision entails, who qualifies as an ALE, how full-time employees are defined under the ACA, and what your company must do to remain compliant. Plus, we’ll explore how specialized solutions like ACA-Track can streamline your ACA compliance journey.

What is the Employer Shared Responsibility Provision?

Under Section 4980H of the Internal Revenue Code, as enacted by the ACA, ALEs are required to offer health coverage to their full-time employees (and their dependents) that is both affordable and provides minimum value. If an ALE fails to meet these criteria and at least one full-time employee receives a premium tax credit for buying insurance through a Health Insurance Marketplace, the employer may owe a penalty to the IRS.

This means ALEs have two main options:

Offer compliant health insurance coverage to full-time employees and their dependents.
Or pay an Employer Shared Responsibility Payment if coverage is not offered or is inadequate.

Who is an Applicable Large Employer (ALE)?

Determining whether your company is an ALE is based on workforce size. Generally:

Employers with 50 or more full-time employees (including full-time equivalents) during the previous calendar year are considered ALEs.
Full-time equivalents (FTEs) are calculated by combining part-time hours worked into full-time employee equivalents.

How to calculate FTEs:

If you have part-time employees, add their total hours worked in a month, capping at 120 hours per employee, then divide by 120. For example:

40 full-time employees + 20 part-time employees each working 60 hours =
40 + (20 x 60 = 1200 ÷ 120) = 40 + 10 = 50 FTEs.

If the total equals or exceeds 50, your company is an ALE for the following year.

Defining a Full-Time Employee for ACA Purposes

A full-time employee under the ACA is someone who works an average of at least 30 hours per week or 130 hours per month. Accurately tracking these hours is vital because it determines who is eligible for health coverage under ACA regulations.

Why Tracking Part-Time and Variable Hour Employees Matters

One of the most challenging aspects of ACA compliance is tracking part-time and variable hour employees:

Tracking actual hours worked is necessary to determine if these employees qualify as full-time during a measurement period.
Without accurate tracking, employers risk penalties if an employee who should have been offered coverage instead seeks subsidized coverage from the Marketplace.

Failing to track hours means losing the ability to prove that employees worked less than the 30-hour threshold, potentially exposing your company to penalties.

The Complexities of ACA Reporting

ALEs must submit detailed reports annually to the IRS, including:

Form 1095-C: Provided to each full-time employee, showing the coverage offered.
Form 1094-C: A transmittal form summarizing the 1095-C filings sent to the IRS.

Gathering the necessary data—such as employee hours, coverage offered, waivers, hire and termination dates—from payroll, HR, and benefits systems can be time-consuming and error-prone.

How ACA-Track Simplifies Compliance

For businesses navigating these complexities, ACA-Track offers a proven ACA compliance solution designed to:

Collect and monitor employee hours worked from multiple systems (payroll, time clocks, manual entry, mobile devices).
Track all employee types: full-time, part-time, variable hour, paraprofessional, and substitute.
Automatically calculate full-time status based on ACA measurement rules.
Alert employers of eligibility thresholds and employee events like leave or waivers.
Provide comprehensive 1094 and 1095 reporting with the ability to electronically file XML files directly with the IRS.
Audit monthly line codes to ensure 1095-C accuracy.
Fix errors in ACA reporting promptly.
Provide a customizable, user-friendly dashboard for filtering, sorting, and grouping ACA data.
Maintain all ACA compliance data in a secure, centralized cloud environment, ensuring easy retrieval in case of IRS audits.

Their dedicated Client Success Advisors ensure that your organization’s ACA compliance is both manageable and efficient.

The Importance of Secure and Integrated ACA Compliance Systems

Data security and integration are crucial when handling sensitive employee information. ACA-Track is:

Hosted in a SAS 70 and SSAE 16 certified data center.
SOC 2 Type 2 compliant, ensuring rigorous data privacy and security standards.
Encrypted to protect personally identifiable information.
Designed to integrate seamlessly with any payroll, HRIS, or financial system, eliminating duplicate data entry and reducing errors.

Penalties for Non-Compliance and IRS Enforcement

Failure to comply with the Employer Shared Responsibility Provision can result in significant penalties:

Late or incorrect filings can cost $50 to $270 per form, with maximum fines reaching over a million dollars for large employers.
Shared Responsibility Payments can be up to $2,000 per full-time employee per year if coverage is not offered.
The IRS may issue a Letter 226-J detailing penalty assessments and requesting a response within 30 days.

Having a system like ACA-Track to monitor compliance and correct errors early can save your company from these costly consequences.

Final Thoughts

The ACA Employer Shared Responsibility Provision places a significant compliance burden on applicable large employers. Accurate tracking of employee hours, comprehensive data collection, and timely, accurate IRS reporting are non-negotiable.

Leveraging a specialized solution such as ACA-Track can simplify the process—giving you confidence in your ACA compliance, reducing risk, and saving time.

If your business wants to take the guesswork out of ACA compliance, consider how ACA-Track’s integrated, secure, and data-driven platform can support your needs.

Learn more about ACA-Track and their ACA Compliance Services by visiting their website: ACA-Track.

If you have questions about your employer obligations under ACA or how to get started with ACA compliance software, feel free to ask!