If you qualify as an applicable large employer (ALE), you may be wondering what regulations apply to you under the Affordable Care Act (ACA). Understanding guidelines such as minimum essential coverage (MEC), the employer mandate, penalties, and affordability can be tricky, especially if you are a new ALE.
To help you get started, the following FAQs will shed some light on how the ACA’s employer mandate affects ALEs.
What is an ALE?
An ALE is any company or organization that has at least 50 full-time equivalent (FTE) employees. According to the ACA, a full-time employee is someone who works at least 30 hours a week, or 130 hours of service per month.
However, you don’t have to have 50 full-time employees or equivalents at all times in order to be considered an ALE. Generally, if an employer has a monthly average of at least 50 full-time equivalent employees during a calendar year, the employer is considered an ALE for the next calendar year.
How does an employer calculate its workforce size to determine if it is an ALE?
To determine workforce size for a given year, an employer needs to calculate its FTE workforce. An employer does this by adding the total number of full-time employees for each month of the prior calendar year and dividing that total by twelve to get a monthly average. If this number is 50 or more, they are an ALE. If the employer has seasonal or part-time workers, these workers must also be factored into the workforce size calculation by translating them into FTEs.
For these calculations, only U.S. employees are counted. Also, employees with medical care through the military, including Tricare or Veterans’ coverage under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, aren’t counted for a month in which they have care. This also applies to volunteer workers, such as firefighters or local EMTs.
How does common ownership impact ALE status?
Businesses that have shared ownership must be aggregated into a controlled group before determining whether the group is collectively considered an ALE. This aggregation occurs even if the businesses are separate legal entities.
If the controlled group is determined to be an ALE, each subcomponent, or individual business, of that controlled group is considered an ALE, regardless of the total number of employees, and is subject to the ESRP.
How does timing impact ALE status calculation?
Generally, ALE status calculations are based on the prior calendar year. If an employer was only in existence for part of the prior calendar year, the calculations are prorated.
An employer that wasn’t in existence on any business day in the prior calendar year is considered to be an ALE if the employer is reasonably expected to and actually does employ an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the current calendar year.
What is the employer mandate?
The employer shared responsibility provisions (ESRP) of the Patient Protection and Affordable Care Act are generally referred to as “the employer mandate.” Only ALEs are subject to the employer mandate.
So what is the employer mandate exactly? The ACA employer mandate requires ALEs to offer their full-time employees and their dependents health insurance that is affordable and meets minimum essential coverage, or they may be subject to employer mandate penalties in the form of payments under the ESPR.
Only full-time employees, not full-time equivalents, are counted for purposes of calculating the penalty. So while you’re considered an ALE if you have more than 50 full-time equivalent employees, you only are subject to a penalty if you have more than 30 full-time employees—not full-time equivalents.
How is affordability defined and calculated?
Affordability is calculated using an employee’s salary and the lowest cost silver plan for that employee’s age and geographic rating area.
For employers offering an individual coverage HRA (ICHRA), the lowest cost silver plans are calculated for the individual only, not their dependents, and use the non-tobacco user rate even though it may not reflect the actual employee’s situation.
Employers with an ICHRA must offer an affordable allowance to at least 95% of their full-time employees. To be considered affordable, the allowance must be greater than or equal to the minimum affordable allowance. If the allowance is less than that, the ICHRA is deemed unaffordable and the employer may be subject to employer shared responsibility penalties.
Does the employer mandate require coverage be offered to dependents?
The employer mandate does require that an employer offer qualified, affordable health coverage to its employees and their dependents. For the purposes of the employer mandate, a dependent is an employee’s child (including a child who has been legally adopted or placed for adoption) who has not reached the age of 26.
Spouses, stepchildren, foster children, or non-US citizen children not living in the U.S. or a contiguous country aren’t considered dependents.
When would an employer be subject to potential employer shared responsibility penalties?
The first type of penalty an ALE may be subject to is not offering MEC to at least 95% of their full-time employees and their dependents.
The second type of penalty is for ALEs that don’t offer affordable coverage to their full-time employees and their dependents.
In each scenario, these ALEs will be penalized if at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace.
Which fines are applied for failing to meet the employer mandate?
For the 2022 tax year, the ACA Employer Mandate penalty fines will be $2,750 and $4,120. These payments are adjusted based on the amount of employees receiving a tax credit and how many months throughout the previous year that employees were not covered. The IRS will propose the greater penalty of the two meaning employers can’t be hit with both penalties.
Keep in mind that even though FTEs are relevant in calculating ALE status, penalties only focus on actual full-time employees.
Does PeopleKeep help employers satisfy the employer mandate?
PeopleKeep’s software helps employers design their ICHRA benefit in order to be compliant and meet the needs of the employer mandate. However, while we do everything we can to help employers be compliant, the software doesn’t prevent an employer from creating a benefit that could be considered non-compliant.
Do ALEs need to comply with COBRA?
ALEs employ more than 20 people for more than half of a business year, so that means they are subject to COBRA. The employer must give eligible employees a chance to elect COBRA coverage when they are terminated from an ICHRA benefit.
What kind of reporting is required for ALEs who provide an ICHRA?
Reporting requirements dictate that ALEs who provide an ICHRA must complete Form 1095-C indicating the method they used to determine affordability for their ICHRA plan. The IRS has yet to release reporting deadlines for filing in 2022 but timing is typically between late-January to early-March. Filers can obtain a 30-day extension by submitting Form 8809.
ALEs must also provide a statement to their full-time employees that includes the same information provided to the IRS.
Is an ALE status relevant to ICHRA minimum class size requirements?
Minimum class size requirements only apply to employers offering a traditional group health plan to at least one class of employees while offering an ICHRA to at least one class of employees. However, minimum class size requirements only apply to some of the 11 designated employee classes, or “applicable classes."
As overwhelming as the ACA regulations may seem, it’s essential that employers understand whether they are an ALE in order to effectively navigate the complex world of the ACA. ALEs are subject to some of the most significant regulations under the ACA and those that fail to meet the requirements may be exposed to costly penalties, including fines for failing to comply with certain information reporting requirements.
If you are an ALE looking for a quality health benefit that will meet ACA guidelines, an ICHRA may suit your needs. Schedule a call with a personalized benefits advisor at PeopleKeep to learn more.
This article was originally published on October 8, 2020. It was last updated October 1, 2021.