ACA Effects on an Applicable Large Employer

Averaging Full-time and Full-time Equivalent Employees and Why it Matters

For purposes of the Affordable Care Act, employers average their number of employees across the months in the year to see whether they will be an applicable large employer.

This is important to do because two provisions of the health care law apply only to ALEs and are now in effect. 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.

Remember that the vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.  

Here are definitions to three terms that are significant in determining whether your organization is an ALE. In general:

• A full-time employee is an employee who is employed on average, per month, at least 30 hours of service per week, or at least 130 hours of service 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.
  
• An aggregated group is commonly owned or otherwise related or affiliated employers, which must combine their employees to determine their workforce size.

Are You an Applicable Large Employer? Review Your Status Annually
You are an applicable large employer if you averaged at least 50 full-time employees, including full-time equivalent employees, during the prior year. Applicable large employers are subject to information reporting and the employer shared responsibility provisions of the health care law.
Here are the steps to determine whether you are an applicable large employer:

• Determine how many full-time employees you had each month of the prior year. This provision defines a full-time employee for any calendar month as one who has, on average, at least 30 hours of service per week. 
• Determine how many full-time equivalent employees you had each month of the prior year. To do this, combine the number of hours of service of all non-full-time employees for the month – but no more than 120 hours per employee – and divide that total by 120.
• For each calendar month, add your full-time and full-time equivalent employees for a monthly total. Add the monthly totals. Divide the sum of the monthly totals by 12. If the result is 50 or more employees, you are an applicable large employer.

The law treats employers in an aggregated group as a single employer for determining applicable large employer status. You are part of an aggregated group if you have common ownership or are otherwise related to other employers.