The Affordable Care Act and You: Applicable Large Employers

by | Aug 18, 2015 | Blog, Tax Planning

Jennifer S SmallBy:  Jennifer Schmerer, Staff Accountant

We are more than halfway through 2015, the first year of mandatory reporting under the Affordable Care Act (ACA).  As the January reporting deadline fast approaches, many employers are still trying to figure out what the ACA means, how it applies to them, how and when to report, and most importantly how much it is going to cost.   This is the first in a series of articles designed to highlight the ACA basics, and help you determine how the new healthcare laws might impact you and your business, as an Applicable Large Employer.

What is the ACA?

In simple terms, the ACA requires Applicable Large Employers (ALE’s) to offer minimum affordable healthcare coverage to aACA Warning Sign majority of their employees or pay a penalty, commonly known as “pay-or-play”.  The first step in knowing whether the ACA applies to you is determining whether you are an ALE.  Here are the basics of what you need to know:

 What’s an ALE?

An Applicable Large Employer (ALE) is an entity that employed on average 50 or more full-time or full-time equivalent (FTE) employees in the previous year.

 What qualifies as full-time?

A full-time employee is defined as one working an average of 30 or more hours per week.

 What’s a FTE?                                  

To determine ALE status, an employer must add all part-time employees’ hours (those working less than 30 hours per week) worked per month and divide by 120 to determine how many full-time equivalent employees they make.

How do I measure my ALE status?

The measurement is done on a monthly basis to determine average full-time and FTE employees per month.  The months are then averaged to determine annual ALE status.

 When do I measure my ALE status?

Employers are required to measure ALE status for the first time for 2014.  Their 2014 status becomes effective for 2015.  In 2015, they will measure again to determine if they are an ALE, which becomes effective for 2016, and so on.

 How do I report my ALE status?

For the first time in January 2016, all ALE’s are required to file forms 1095-C and 1094-C for 2015.  The 1095-C is sent to both the IRS and the employee and reports if there was a qualifying offer of coverage and for which months (think healthcare W-2).  The 1094-C is sent by the employer to the IRS and summarizes all information on the forms 1095-C (think healthcare W-3).  If you are not an ALE, no reporting is required.

Transition Help

The initial ALE measurement process can be very time-intensive.  To help ease some of the administrative burden on employers, the I.R.S. has issued regulations permitting employers to use any consecutive six month period from 2014 to determine their ALE status.  For 2015 and beyond, all 12 months must be measured.

Seasonal Employers

There is also an important seasonal employer exception when determining ALE status.  If you exceed 49 employees for 120 days or less of the year, you are not considered an ALE for the year.  For example, if you are a farmer that employs 20 year-round employees, but hires 50 employees from August to October to help with harvest, you are not considered an ALE.

Employers with More Than One Business

For purposes of determining ALE status, the ACA requires that an employer who has control of more than one business aggregate the number of employees across all businesses.  For example, if you own 100% of Company A which has 20 full-time and FTE employees and 80% of Company B which has 34 full-time and FTE employees, you are considered to have 54 employees total and qualify as an ALE.

 Confused Yet?

Any discussion of the ACA always ends with more questions.  While this article series is designed to be as informative as possible, the ACA is very complex and is still an evolving law.  Please consult with your tax professional as to how the ACA applies to your specific facts and circumstances.  Want help with ACA compliance and/or reporting services?  Nichols Accounting Group now offers consultative ACA compliance services, as well as Payroll Services to manage ACA compliance, so give us a call!

For I.R.S. answers to frequently asked questions on the ACA see: http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

Contact us to learn how we can simplify your ACA compliance.

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