Starting in 2015, Applicable Large Employers (ALEs) will be subject to the "employer mandate" -- the Affordable Care Act requirement to either offer minimum, affordable health insurance by 2015 or be subject to penalties.
This article looks at the definition of an ALE and two common mistakes employers make when determining if they are an ALE (for the purposes of the ACA employer mandate).
Who Is an Applicable Large Employer (ALE)?
An ALE is any employer with 50+ full time equivalent employees. If you have less than 50 employees, you are not an ALE. If you have 50 or more employees, you probably are an ALE.
But for those employers on the cusp of 50 employees, or with a mix of full time, part time, and seasonal employees, the calculation can get more complicated.
An ALE is any control group employer that averaged 50 or more full-time employees, plus full-time equivalents, on business days during the preceding calendar year. For example, an employer could be an ALE in 2015, but not in 2014. If the company employed 50 or more full-time employees on average during the preceding calendar year, they are an ALE for the current calendar year.
An employer is NOT an ALE if the employer:
Employed less than 50 full-time employees on average during the previous calendar year, or
Employed more than 50 full-time employees no more than 120 days during the previous calendar year due to a seasonal workforce.
Calculating the number of full-time employees.
Generally, a full-time employee is a worker who is employed on average at least 30 hours of service per week in a given month. However, for purposes of determining whether a company is an ALE, the company must include all full-time employees plus the full-time equivalent of its part-time employees.
To calculate the full-time equivalent of part-time employees, a company should add the number of hours worked by part-time employees and divide the total by 120.
The sum of the full-time employees and the full-time equivalent of the part-time employees is the number used to determine whether a company is an applicable large employer.
2 Common Mistakes When Determining ALE Status
Mistake #1: Not Counting Part Time Employees
The first mistake employers commonly make when determining ALE status is not counting part-time employees.
“We have only 45 full-time employees”
"We'll reduce everyone's hours because only full-time employees count"
As detailed above, part-timers are used in the calculation of whether the employer is an ALE.
Mistake #2: Not Including Employees From All Business Entities
The second mistake employers make when determining if they're an ALE is not totalling all employees employed under all business entities.
"If I divide my company into several smaller companies I can avoid the employer mandate"
"I own several businesses under the same parent company; how do I determine if I'm an ALE?"
When a business entity is considered a controlled group (as listed below), the business is considered a single employer under the ACA employer mandate.
There are three types of controlled groups:
- Parent-Subsidy Group
- Brother-Sister Group
- Combined Group
Now that you've determined if you're an ALE for the purposes of the employer mandate... what's next?
Here are additional Affordable Care Act articles to help employers decide their health benefits strategy:
What other mistakes are you seeing employers make when calculating if they are an Applicable Large Employer (ALA) under the ACA employer mandate? Leave a comment below.