Time to Reassess Applicable Large Employer (ALE) Status

 August 16 2017     Diane Cross

The future of health care reform may be uncertain, but there is one thing that remains clear - the Affordable Care Act (ACA) is the law of the land and the employer mandate is still in effect. This means it is a great time for employers who are approaching 50 employees to take a proactive approach and reassess their status as an applicable large employer (ALE) under the ACA. Remember, ALEs may be subject to a penalty if they fail to make an offer of coverage that is deemed affordable and of minimum value to enough full-time employees.

In order to know the impact of this rule on an employer, ALE status must first be determined.

What is an ALE?

An ALE is an employer with 50 or more full time equivalent employees during the preceding calendar year. Note that ALE status is determined retrospectively, so 2018 ALE status is based on employees counted in 2017. In addition, “employees” are defined as common-law employees, which do not include a leased employee, sole proprietor, partner in a partnership, or a 2% S Corporation shareholder. Employers should be mindful of employee classification in order to accurately determine ALE status.

How is ALE Status Determined?
Simply put, an employer must count its workforce each month of the calendar year, taking into consideration all employees. If the count results in 50 or more full-time employees (including full-time equivalents) on average over the year, the employer is deemed an ALE. For controlled groups, all employees of each employer member must be taken into consideration. For purposes of determining ALE status, full-time employees are those that work at least 120 per month. To measure the part-time employees as full-time equivalents for a month, add the aggregate hours of service in a month for employees who are not considered full-time and divide the total hours by 120.

For example, for each month in 2017 assume Employer A has 35 full-time employees and 30 employees who average 100 hours of service per month. Employer A would be an ALE for 2018.

Full-time Employees: 35
Full-time Equivalents: 25 (30*100=3000; 3000/120 = 25)
Total Size: 60

Are there any exceptions?
The regulations provide for a seasonal worker exception. If the workforce exceeds 50 full-time equivalent employees for 120 days or fewer per calendar year, and the employer otherwise would not have been considered an ALE except for the employment of seasonal workers during those 120 days, the employer will not be considered an ALE. A seasonal worker in this context is one who performs labor or services on a seasonal basis. For example, retail employees who work only from Thanksgiving to New Year’s Day would be considered seasonal workers. If your employment population has a large seasonal workforce and is otherwise “on the bubble” of 50 employees, it is important to understand the impact of this exception on your employer size.

Once ALE status is determined, employers must choose whether or not to comply with the employer mandate and offer affordable, minimum value coverage to full-time employees or face penalties. As an ALE, the employer must also know which employees should receive an offer of coverage, select a method for determining which employees are full-time under the employer mandate, and track data to complete ACA reporting requirements (Forms 1094C/1095C) – or pay additional penalties.

It is important to accurately determine ALE status to understand your compliance obligations under the ACA. If you have a dynamic workforce, you should proactively assess your ALE status on an annual basis. ALE status can change from year to year.

To discuss how the employer mandate may apply to your organization, contact your HORAN representative.