The Affordable Care Act (ACA) doesn’t require all employers to offer coverage to their employees. Only those employers defined by federal law as applicable large employers (ALEs) must make health insurance available.
“Accurately calculating and knowing your company’s ALE status is crucial to ACA compliance and helping your company avoid a costly penalty,” says Judy Griffith, compliance officer at JRG Advisors.
Smart Business spoke with Griffith about how to determine your ALE status to see if you must offer health insurance.
What exactly is ALE status?
An employer that had an average of at least 50 full-time employees on staff per month during the prior calendar year is an ALE.
ALE status must be determined each year. This determination is vitally important to a business or organization’s ACA compliance. ALEs are subject to the employer shared responsibility and information reporting provisions for offers of minimum essential coverage to employees.
How do employers determine if they are an ALE or not?
You must consider many items to determine whether an organization employs 50 full-time employees and is therefore an ALE. The first question to think about is how are full-time employees defined under the ACA? Full-time employees include an employee who works 30 hours or more per week or employees working 130 or more hours in a calendar month.
Full-time equivalent employees are also included in the count of full-time employees. Full-time equivalent employees are not full-time employees. Instead, the number of full-time equivalent employees is determined by combining the number of hours of service for all part-time and variable hours employees working 120 hours or less during the month and dividing that total by 120.
This number only counts toward the total number employees per month for determining if the employer is an ALE. It won’t change an individual employee’s status from part time to full time, which affects whether an offer of coverage must be made.
How are seasonal workers reflected?
Employers who exceed 50 full-time employees (including full-time equivalent employees) are not considered ALEs where the business employs seasonal workers if certain conditions apply. First, the company’s total workforce must only exceed 50 full-time employees for 120 or fewer days during the year. Second, the employees who exceed 50 full-time employees during those 120 or fewer days must be seasonal workers. Seasonal workers are generally defined as employees who work on a temporary or seasonal basis, such as retail employees who work during the holiday season or summer staff at a swimming pool.
What happens if a company is part of a larger ownership group?
Companies with common ownership may be part of a controlled group, which requires employers to aggregate the total number of employees across the group to determine if the included companies are ALEs. In other words, the employees of every company within a controlled group determine if any company within the controlled group is an ALE.
Also, for a calendar year in which an employer is an ALE, the regulations applicable to ALEs apply to each company within the controlled group regardless of whether the individual company has 50 or more full-time employees or full-time equivalent employees.
What else do employers need to know?
The final item to consider is the definition of a common law employee. Common law employees are generally defined as workers whose work schedule is controlled by the employer (rather than by the worker himself or another employer).
Employers should closely review the job duties and expectations for workers from temporary staffing agencies and those classified as independent contractors because their employment status can be easily confused. These workers may be considered employees who count toward a company’s full-time employee or full-time equivalent employee number. Failure to correctly account for these employees can result in a false conclusion as to whether an employer is an ALE.
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