ACA Employer Mandate: Are You Large Enough to Count?

Who counts as an applicable large employer

Under the Affordable Care Act, an applicable large employer (ALE) is one that averaged at least 50 full-time employees, including full-time equivalents, during the prior calendar year. If you cross that line, the employer mandate applies to you for the following year. If you stay under it, the mandate generally does not apply, though other rules still might.

Many Inland Empire employers are surprised to land on the ALE side. A growing warehouse, a staffing firm with a busy year, or a construction company with a large seasonal crew can all cross the line without anyone deciding to.

One more wrinkle: related companies are usually counted together. If you own more than one business, or your company is part of a larger group, the headcount may be combined across all of them. A tax professional can tell you how your ownership structure is treated.

Full-time, part-time and full-time equivalents

For the ACA, a full-time employee is someone who averages at least 30 hours of service a week, or 130 hours in a month. This is lower than the 40 hours many people assume. A team member scheduled for 32 hours is full-time for ACA purposes, even if your handbook calls that role part-time.

Full-time equivalents (FTEs) are how the law counts your part-time workforce. You add up the hours worked in a month by everyone who is not full-time, with a cap on each person's hours, and divide by a set monthly figure. The result is a number of "equivalent" full-time employees that gets added to your real full-time headcount.

The calculation is done month by month, then averaged across the prior year. That means you should be tracking hours, not just job titles.

• Count hours of service, which includes paid time off and other paid leave, not only hours on the clock.
• Include part-time, hourly and temporary staff in the FTE math.
• Check how seasonal workers are treated, since special rules may apply.
• Keep the monthly records. You will need them if anyone asks how you got your number.

What the mandate asks of an ALE

In short, an ALE must offer health coverage to substantially all of its full-time employees and their dependent children. The coverage has to meet two tests: it must be affordable, and it must provide minimum value. Offering a plan is not enough if it fails either test.

Notice what the mandate does not require. It does not make you cover part-time employees, and it does not require you to cover spouses. It also does not dictate which plan design you choose, as long as the plan meets the standards.

Employees who are not offered qualifying coverage may be able to get financial help buying a plan on the public exchange. That is where the penalty exposure for employers can come from, which we cover below.

What affordability actually means

Affordability is measured by what an employee would pay for self-only coverage on the least expensive plan you offer that meets minimum value. It is not measured by the family premium, and it is not about how the employee feels about the price. The test compares that employee contribution to a percentage of income, and the IRS sets that percentage each year. Check the current figure before you finalize your contributions.

Because you usually do not know every employee's household income, the IRS allows safe harbors. These are simplified ways to test affordability using information you already have.

The three common safe harbors are based on:

• Wages reported in Box 1 of the employee's Form W-2.
• The employee's hourly rate of pay, or monthly salary, at the start of the coverage period.
• The federal poverty line, which is often the simplest to apply.

Minimum value, penalties and reporting

Minimum value means the plan covers a reasonable share of the total cost of benefits and includes substantial coverage of inpatient hospital and physician services. Some very thin plans fail this test. Ask whoever designs your plan to confirm in writing that it meets minimum value.

There are two kinds of employer penalty. One can apply if you do not offer coverage to enough full-time employees and at least one of them receives premium help on the exchange. The other can apply if you do offer coverage but it is unaffordable or lacks minimum value for a particular employee. Penalty amounts are set each year, so check the current figures with a licensed advisor or tax professional.

ALEs also report to the IRS. You file Forms 1094-C and 1095-C, and you furnish a statement to each full-time employee. These forms are where mistakes surface, so accurate hours and offer records matter all year.

Practical next steps you can take this month

You do not need to become a tax expert. You need a clear picture of your headcount, your hours and your plan. A few focused tasks will get you most of the way there.

If any answer feels uncertain, a benefits review with an advisor is one option for sorting out where you stand. Confirm the legal and tax details with a licensed advisor or tax professional either way.

• Pull monthly headcount and hours for the prior calendar year, including part-time and seasonal staff.
• Calculate your full-time and FTE totals, and see how close you are to the 50 line.
• Identify every employee who averages 30 hours a week or more, whatever their job title.
• Find the employee contribution for self-only coverage on your least expensive qualifying plan.
• Test that contribution against one safe harbor, using the current year's IRS figure.
• Confirm your plan meets minimum value and that your filing records are in order.
• Make a note of any variable-hour roles, since they may call for a look-back measurement method.

This article is general education for employers, not legal, tax or plan advice. Benefit rules and options depend on your group size, location and plan, so talk with a licensed advisor before making changes. Sixth Man Employer & Insurance Services, CA Insurance License #0I01929.