Determining who qualifies as a full-time employee under the Affordable Care Act (ACA) is more complex than it appears. However, getting this calculation right is crucial because it determines whether an organization qualifies as an Applicable Large Employer (ALE). ALE status is the key to understanding an employer’s obligations under the ACA’s Employer Mandate.
Why ALE Status Matters
Organizations classified as ALEs must comply with specific healthcare responsibilities under the ACA. This includes offering affordable Minimum Essential Coverage (MEC) that meets Minimum Value (MV) standards to at least 95% of full-time employees and their dependents. Failure to meet these requirements can result in penalties under Internal Revenue Code (IRC) Section 4980H. These penalties, issued via IRS Letter 226J, can be costly.
What Is an ALE?
An Applicable Large Employer is defined as an organization that employs at least 50 full-time employees, including full-time equivalent (FTE) employees, for more than 120 days during the preceding calendar year. For example, to be considered an ALE in 2022, an organization must have met this threshold in 2021.
Understanding ACA Full-Time Employees
The ACA defines a full-time employee as someone who works 30 hours per week or 130 hours per month. For instance, if Grandview Hotel employs 60 workers and 40 of them work at least 30 hours per week or 130 hours per month, those 40 workers are classified as full-time employees under the ACA.
ALEs must offer health insurance coverage to these full-time employees. Failure to provide coverage that meets MEC, MV, and affordability standards could result in receiving an IRS Letter 226J.
Addressing Variable-Hour Employees
Determining full-time status can be challenging for organizations with variable-hour employees—those who work inconsistent hours weekly. For such cases, the ACA allows employers to use the Look-Back Measurement Method to calculate average hours worked over a specific period.
What Are Full-Time Equivalent (FTE) Employees?
The ALE calculation also includes full-time equivalent employees. These are not actual full-time employees but represent the combined hours of part-time employees. To calculate FTEs:
- Add the total hours worked by part-time employees in a month.
- Divide the total hours by 120.
The resulting number represents the FTE count for that month. This number is then added to the count of full-time employees to determine the ALE status.
Example: ALE Calculation
Grandview Hotel has:
- 20 full-time employees.
- 40 part-time employees who worked a total of 3,600 hours in September.
To calculate FTEs for September:
- Divide 3,600 hours by 120, resulting in 30 FTEs.
Add the 20 full-time employees to the 30 FTEs, totaling 50 employees. While this meets the 50-employee ALE threshold for September, the organization must calculate this average monthly over the preceding year to determine its ALE status.
Simplifying the Process
Accurately calculating ALE status requires precise tracking of employee classifications across payroll, HCM, and benefits systems. Misclassification can lead to compliance issues and penalties.
A full-service ACA compliance provider, such as ACA Track, can streamline this process. By pulling employee data monthly, measuring hours, and calculating full-time equivalents and ALE status, ACA Track ensures compliance and reduces the risk of IRS penalties.
Why Accurate Classification Matters
Properly classifying employees and determining ACA full-time status is critical to avoid potential penalties. Outsourcing ACA compliance can save time, reduce errors, and provide peace of mind.
To learn more about ALE calculations, the Look-Back Measurement Method, affordability standards, and other ACA requirements, visit www.aca-track.com. Our full-service ACA compliance solution will ease the burden of filing. Schedule a demo today!
Stay compliant and minimize your risk—get ACA compliance right the first time.
