This section will answer questions about which employers need to be concerned with the Affordable Care Act, and how to figure out if you fall into that category.
Almost every employer is subject to at least some rules in the ACA. The only employers who can consider themselves completely free of the reaches of the Affordable Care Act are those who meet all of the following:
- Employers with less than 50 Full-Time Employees (including Full-Time Employee Equivalents – more to follow on that), AND
- Who buy group health insurance for none of the employees.
If a business has more than 50 Full-Time Employees (including equivalents), then the business is an “Applicable Large Employer” and is then required to obtain health insurance coverage for (1) all full-time employees (plus their dependents), that (2) meets the ACA’s requirements, and (3) the coverage must be affordable (to the employee, not necessarily to the employer), or else the business faces a penalty.
If a business has fewer than 50 Full-Time Employees (including equivalents), but obtains health insurance for any of those employees, then there are still rules in the Affordable Care Act that apply and all employers, regardless of size must pay penalties for health plans that do not comply with ACA rules.
Finally the ACA’s definition of “employer” is the broadest it could possibly be. Anyone who has employees is an employer, including businesses, non-profits, and governments.
So who is a full-time employee? According to Congress, and for the sole purpose of determining if a business is an Applicable Large Employer (meaning ignore this whole thing when we get to the next section on “who the employer has to buy insurance for”), a Full-Time Employee is “anyone who averages more than 30 hours of service per week or 130 hours of service per month.”
You do this “headcount” for each month of the calendar year. Hang on to those numbers, because we aren’t finished yet. Next we have to calculate the Full-Time Equivalent Employees.
The last thing to keep in mind, before we move on to Full-Time Equivalents, is that “hours of service” has its own special definition, and it doesn’t just mean the hours that an employee is on the job. There are other “hours” that need to be included, and there are special rules for certain situations and for certain employees. The Special “Hours of Service” section explains this in more detail.
Full-Time Equivalent Employees
The calculation for Full-Time Equivalent Employees is similar to the Full-Time Employee count. For the Full-Time Equivalents, we take all hours of service for all employees who are not Full-Time. In other words, for each month of the year, scoop out the hours of service for those people who qualified as “Full-Time”, then total up all hours of service for everyone else. We divide this by 120 for each month, and that gives you the total “Full-Time Equivalent Employees” for the month.
One last wrinkle here has to do with seasonal workers. Seasonal workers, if they qualify under the ACA as “seasonal” can be completely excluded from this calculation under certain circumstances. For a discussion of seasonal workers, click here (link).
Applicable Large Employer
Once the employer has counted the number of Full-Time Employees for each month, and the number of Full-Time Equivalent Employees for each month, the employer must add those figures together for each month and find the average of each monthly total throughout the year. Finally you round to the nearest 1/100th of an employee. If the average comes out to 50.00 or more, then the business is an applicable large employer for the following calendar year. A company that averages 49.994 would not be an ALE the following year.
But wait! There’s more:
Companies that are subsidiaries or parts of a larger group of companies have to combine their numbers when calculating their status as an ALE.
So that’s the basics and unfortunately, that is the easy part. Spreadsheets and “tools” are sufficient to solve the problem up until now. Counting Hours of Service can be where simple math is inadequate, a good strategy becomes necessary, and documenting the methods in the health plan documents is absolutely critical. For more information about counting Hours of Service, please refer to our Employer Compliance Breakdown Section and our Special section on counting hours.
For more information on the rules for how Applicable Large Employers determine which employees to offer coverage, when to offer coverage, and the penalties for failing to offer coverage, click here.
For more information on how employers must count hours of service, click here.
For more information on how seasonal workers are treated differently from other employees, click here.