The Affordable Care Act (ACA) requires applicable large employers (ALEs) to offer health coverage to at least 95% of full-time employees and their children (as defined by the ACA) or potentially pay a tax penalty. In addition, the ACA reporting requirement under Code Section 6056 requires ALEs to submit annual reports to the IRS and written statements to employees that include data about medical plans offered, the cost of coverage and enrollment.

What is an ALE ( Applicable Large Employer)?

ALEs are companies with a monthly average of 50 or more full-time or full-time equivalent employees (FTEs) on its normal business days in the prior calendar year. To navigate through ACA requirements, you first must calculate your company’s FTE count and determine ALE status. Your company must use monthly employment data from all 12 months in the prior calendar year to calculate your FTE count and determine ALE status.

Below is a sample calculation to determine ALE status. The example below assumes that the company is not part of a controlled group and does not have seasonal workers.1

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

CountJanFebMarAprMayJunJulAugSepOctNovDec
Full-time employees484848494950515151515252
Other employee hours000120240240240360360360240240
Convert to FTE (hours divided by 120)000122233322
FTE Count484848505152535454545454

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 ACA requirements for ALEs during the following calendar year.

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 U.S.?

Employees who work outside of the U.S. 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 exclusively performed at certain seasons or periods of the year and may not be continuous or carried on throughout the year. Seasonal workers cannot be employed more than 120 days. 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 may 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 four calendar months (treated as the equivalent of 120 days). The terms “seasonal worker” and “seasonal employee” are used in the ACA in two different contexts.

The term “seasonal worker” is relevant for ALE calculation. Whereas, the term “seasonal employee” is relevant for determining an employee’s status as a full-time 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.

1 Seasonal workers cannot be employed more than 120 days.

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TriNet does not provide legal, tax or accounting advice.

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