ACA Compliance - Are You an ALE in 2016?

  • Posted by: J. Kent Gervasini |
  • 11/5/15 |
  • 4:11 PM
  • 1565 Views
ACA Compliance - Are You an ALE in 2016?

What is your understanding of which ALE acronym is most critical to your company’s 2016 ACA compliance strategy?
                      1. Additional Living Expense (ALE)
                      2. Assumption of Liability Endorsement (ALE)
                      3. Absolute Lowest Estimate (ALE)
                      4. Applicable Large Employer (ALE)
                      5. Annual Loss Expectancy (ALE)
                      6. Active Life Expectancy (ALE)

Correct Answer
Applicable Large Employer


Under ACA - Are You An Applicable Large Employer (ALE)?
Determining who the “employer” is, and which members of your workforce are considered “employees” under the Affordable Care Act (ACA) requires sophisticated software.  It also requires consistent employee tracking of your ACA classified workforce, and a solid understanding of the ACA’s “employer shared responsibility provisions”.

Ultimately, if you do not know who is considered an employee under the ACA, it can entrap the unwary. If an employer fails to include all employees who are required to be included under ACA regulations for “employer shared responsibility” purposes, the employer can be exposed to substantial pay-or-play penalties. The penalties are severe….so make sure you have determined if you are an ALE according to ACA.

ALE Calculations in Prior Year Determine if the Employer is an ALE in the Next Year
Whether an employer is an ALE is determined each calendar year, and generally depends on the average size of an employer’s workforce during the prior year. Two provisions of the Affordable Care Act that apply only to Applicable Large Employers (ALEs) are now in effect:

  1. the employer shared responsibility provision, and
  2. the employer information reporting provision for offers of minimum essential coverage.

In addition, self-insured ALEs – that is, employers who sponsor self-insured group health plans – have additional provider information reporting requirements.

Have You Run Your ALE Calculations to Determine Workforce Size for Each Year?
In speaking with J. Kent’s clients, we have found that many of our client companies are not aware of the ACA’s provisions that apply to Applicable Large Employers (ALE). And, we have also found that many organizations do not know that there is an ACA defined formula that must be calculated in order to determine if your company is or is not ALE in any given calendar year.

If the calculation outcome determines that you are an ALE, then your company will have to decide if you will provide insurance for your workforce or pay penalties. Are you an ALE in 2016 based on your 2015 ALE calculations? Here is some basic information...

Employer is NOT ALE in 2016 Employer IS an ALE in 2016
  • If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year.
  • Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year.
  • Employers who are not ALEs may be eligible for the Small Business Health Care Tax Credit.

If an employer has at least:

  • 50 full-time employees,
  • including full-time equivalent employees,
  • on average during the prior year,
  • the employer is an ALE for the current calendar year,
  • and is therefore subject to the employer shared responsibility provisions and the employer information reporting provisions.
Determining Workforce Size for Each Year
  • Total # of full-time employees for each month of the prior calendar year
                                                           +
  • Total # of full-time equivalent employees for each calender month of the prior calendar year
  • DIVIDE that total # by 12                                        
                    Full-Time Employees             Full-Time Equivalent Employees
  • A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month, or
  • at least 130 hours of service during the calendar month.
An employer determines its number of full-time-equivalent employees for a month in the two steps that follow:
  1. Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and
  2. Divide the total by 120.
Full-Time Equivalent Employees (or Part-Time Employees)
  • An employer’s number of full-time equivalent employees (or part-time employees) is only relevant to determining whether an employer is an ALE.
  • An ALE need not offer minimum essential coverage to its part-time employees to avoid an employer shared responsibility payment.
  • A part-time employee’s receipt of the premium tax credit for purchasing coverage through the Marketplace cannot trigger an employer shared responsibility payment.


Basic ALE Determination: Example 1 - Employer is NOT an ALE

  • Company X has 40 full-time employees for each calendar month during 2016.
  • Company X also has 15 part-time employees for each calendar month during 2016 each of whom have 60 hours of service per month.
  • When combined, the hours of service of the part-time employees for a month totals 900 [15 x 60 = 900].
  • Dividing the combined hours of service of the part-time employees by 120 equals 7.5 [900 / 120 = 7.5]. This number, 7.5, represents the number of Company X’s full-time-equivalent employees for each month during 2016.
  • Employer X adds up the total number of full-time employees for each calendar month of 2016, which is 480 [40 x 12 = 480].
  • Employer X adds up the total number of full-time equivalent employees for each calendar month of 2016, which is 90 [7.5 x 12 = 90].
  • Employer X adds those two numbers together and divides the total by 12, which equals 47.5 [(480 + 90 = 570)/12 = 47.5].
  • Because the result is not a whole number, it is rounded to the next lowest whole number, so 47 is the result.
  • So, although Company X has 55 employees in total [40 full-time and 15 part-time] for each month of 2016, it has 47 full-time employees (including full-time equivalent employees) for purposes of ALE determination.
  • Because 47 is less than 50, Company X is not an ALE for 2017.

Basic ALE Determination: Example 2 - Employer IS an ALE

  • Company Y has 40 full-time employees for each calendar month during 2016.
  • Company Y also has 20 part-time employees for each calendar month during 2016, each of whom has 60 hours of service per month.
  • When combined, the hours of service of the part-time employees for a month totals 1,200 [20 x 60 = 1,200].
  • Dividing the combined hours of service of the part-time employees by 120 equals 10 [1,200 / 120 = 10]. This number, 10, represents the number of Company Y’s full-time-equivalent employees for each month during 2016.
  • Employer Y adds up the total number of full-time employees for each calendar month of 2016, which is 480 [40 x 12 = 480].
  • Employer Y adds up the total number of full-time equivalent employees for each calendar month of 2016, which is 120 [10 x 12 = 120].
  • Employer Y adds those two numbers together and divides the total by 12, which equals 50 [(480 + 120 = 600)/12 = 50].
  • So, although Company Y only has 40 full-time employees, it is an ALE for 2017 due to the hours of service of its full-time equivalent employees.
  • Additional examples can be found in section 54-4980H-2 of the ESRP regulations.

Source:  https://www.irs.gov/Affordable-Care-Act/Employers/Determining-if-an-Employer-is-an-Applicable-Large-Employer

The information above does not constitute legal advice.
Employers and corporate entities should consult a Colorado labor or employment attorney with additional questions, or for guidance and more information.

 

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