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.
ALEs are companies with an 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.
Example: Company A’s FTE count from the prior calendar year
|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|
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.
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.
Employees who work outside of the U.S. are excluded from the FTE count.
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:
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).
1 Seasonal workers cannot be employed more than 120 days.
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