Benefits | Affordable Care Act

ACA Fact Sheet -2016 ALE Calculation

Recent Insight

The Affordable Care Act (ACA) requires "Applicable Large Employers" (ALEs) to offer health coverage to a substantial number of benefitseligible employees and their children (as defined by the ACA)—or potentially pay an excise tax penalty. In addition, beginning in 2016, the ACA reporting requirement under Code Section 6056 will require ALEs to submit annual information reports to the IRS, as well as an annual written statement to employees containing data about the health benefits offered and the associated costs of such benefits. The reporting will include enrollment and coverage information for the prior calendar year.

ALEs are companies with an average of 50 or more Full Time Equivalents (FTEs) on business days in the prior calendar year. In order to navigate through these ACA requirements, you first have to calculate your company’s FTE count and determine ALE status. Beginning in 2016, your company must use monthly employment data from all 12 months* in the prior calendar year (i.e., January through December 2015) to properly calculate your FTE count for purposes of determining ALE status.

*The 6-month special exception for 2014 only applied to the 2015 FTE calculation.

Below is a sample calculation to determine ALE status for the 2016 plan year. The example below assumes that the company is not part of a controlled group and does not have seasonal workers.

Example: Company A’s FTE count from the 2015 calendar year

Count Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Full-time employees 48 48 48 49 49 50 51 51 51 51 52 52
Other employee hours 0 0 0 120 240 240 240 360 360 360 240 240
Convert to FTE (hours divided by 120) 0 0 0 1 2 2 2 3 3 3 2 2
FTE Count 48 48 48 50 51 52 53 54 54 54 54 54

In this example above, the average monthly FTE count for the 12 month period is 51.66 [(48+48+48+50+51+52+53+54+54+54+54+54) ÷ 12]. Therefore, the company is subject to the Employer Shared Responsibility provisions in 2016.

Does your company have shareholders or partners?

 Your company’s FTE count includes individuals who are employees under the common law standard. A sole proprietor, partner in a partnership or a 2% S corporation shareholder are not considered “employees” and should not be included in the FTE count.

Does your company have employees that work outside of the United States?

Employees that work outside of the United States are excluded from the FTE count.

Does your company employ seasonal workers?

Seasonal workers are those who perform labor or services on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year. The regulatory agencies have clarified that employers may apply a reasonable, good faith interpretation of the term “seasonal worker” that is not limited to retail workers or agricultural workers (covered by 29 CFR § 500.20(s)(1)).

Seasonal workers must be counted in a company’s FTE calculation. However, a company with 50 or more FTEs would avoid ALE status if:

  • the employer’s workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year; and
  • the employees in excess of 50 employed during such 120-day period were seasonal workers.1

If both of the above requirements are met, the seasonal workers may be excluded from the calculation for the four calendar months (treated as the equivalent of 120 days) and may make it easier for a company to avoid ALE status.

Is your company a subsidiary of or commonly owned by other entities?

Seasonal Worker and Seasonal Employee: The terms “seasonal worker” and “seasonal employee” are used in the employer shared responsibility provisions in two different contexts. The term “seasonal worker” is relevant for the ALE calculation. Whereas, the term “seasonal employee” is relevant for determining an employee’s status as a fulltime employee under the look-back measurement method (please refer to the ACA Fact Sheet - Full-Time, Variable Hour and Seasonal Employees).

Is your company a subsidiary of or commonly owned by other entities?

If a controlled group exists, the FTE count of each company within the controlled group must be aggregated to determine whether the controlled group collectively employs, on average, enough FTEs to be considered an ALE. For more information about controlled groups please refer to the ACA Fact Sheet – Controlled Groups.

If a controlled group exists, the FTE count of each company within the controlled group must be aggregated to determine whether the controlled group collectively employs, on average, enough FTEs to be considered an ALE. For more information about controlled groups please refer to the ACA Fact Sheet – Controlled Groups.

1 Seasonal workers cannot be employed more than 120 days.

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