The IRS has issued a reminder to employers that they must determine whether they are Applicable Large Employers for purposes of the Affordable Care Act – that is, whether they have an average of 50 or more full-time or full-time-equivalent employees over the course of a year.
This calculation is important because two provisions of the health care law apply only to ALEs. These are the employer shared responsibility provision, and 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.
The vast majority of employers will fall below the ALE threshold, the IRS noted. These companies therefore will not be subject to the employer shared responsibility provisions.
In determining whether they are an ALE, in general, employers average their number of employees across the months in a calendar year to see whether they have at least 50 FT or FTE employees.
Here are three terms important in determining whether an organization is an ALE.
A full-time employee in general is an employee who, on average, works at least 30 hours per week, or at least 130 hours in a calendar month.
A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. For example, two employees who each work an average of 15 hours per week are equivalent to one full-time employee.
To determine if an organization is an applicable large employer for a year, in general, the organization counts its full-time employees and full-time equivalent employees for each month of the prior year, and calculates the average number of FT and FTE employees during the year.
Employers with 50 or more employees, or full-time equivalent employees, are applicable large employers. They will need to file an annual information return that reports whether they offered health insurance to their employees, and if so, what insurance they offered.
In addition, ALEs are subject to the Employer Shared Responsibility provisions.
In making the ALE calculation, companies must determine if they are a member of an aggregated group of two or more commonly owned, related or affiliated employers.
Members of an aggregated group must combine their employees to determine their workforce size. The members of the group must count the full-time and full-time equivalent employees of all members of the group for each month of the prior year, and calculate the average number of FT and FTE employers for the year.
For example, if three firms are jointly owned, with one on average having 20 full-time employees during the year, another having 25 and the third with 12, the three firms together are an ALE.
There are additional rules for determining who is a full-time employee, including what counts as hours of service. For more information on these rules, see the employer shared responsibility final regulations and related questions and answers on IRS.gov.
For more information, see the Determining if an Employer is an Applicable Large Employer page on the IRS.gov website.