If you’re an applicable large employer (ALE) with 50 or more full-time or full-time equivalent employees, you’re responsible for reporting health insurance coverage to employees and the IRS through the 1095-C (and 1094-C transmittal), beginning in 2016.
Are you an ALE? Since this is the first step in complying with the Employer Shared Responsibility provision under the ACA, it’s important to understand if you qualify.
Tracking employee hours for ALE status
First things first: reviewing the hours of service for your workforce. Hopefully you track employee hours and can pull time-keeping and payroll records to get an accurate monthly picture.
When you’re calculating the full-time and full-time equivalent employees for the preceding calendar year, keep in mind:
- A full-time employee averages at least 30 hours of service per week (or 130 hours in a month). This is different from the typical 40 hours a week you associate with full-time employees. It’s specific to ACA reporting, though, so you want to remember it: 30 hours per week.
- For hourly employees, you must count the actual hours worked and hours paid. For non-hourly, salaried employees, you should count either the actual hours worked and hours paid, or use one of two measurements: 1) days worked equivalence, which is 8 hours for each day with at least one hour of service, or 2) weeks worked equivalence, which is 40 hours for each week with at least one hour of service.
- With all of the above, you must also include the hours paid, like vacation, sick time, disability, jury duty, military duty and other leaves of absence. You’re looking at the hours of service to the employer, not just the hours worked on the job.
Monitoring your full-time employee count is important not only for determining ALE status, but also because it’s a trigger for when employees are eligible for coverage. There are measurement methods for this, too – the monthly measurement method and the look-back measurement method, which is often used with variable-hour employees. Basically, when an employee becomes full time, you must offer minimum essential coverage under the ACA to avoid penalties.
Calculating full-time equivalent employees
You’ve figured out your full-time employees, but now you need to consider your full-time equivalents, too. A full-time equivalent is a combination of part-time employees that counts as a full-time employee.
To determine the number of full-time equivalent employees for a month:
- Add up the part-time service hours in a month (up to 120 hours per employee)
- Divide the total by 120; if this results in a fraction, round down to the next whole number
For example, if seven employees work 20 hours/ week, you would have four FTEs.
(7 X 20 hours/week = 140; 140 X 4 weeks/month = 560; 560 (divided by) 120 = 4.66, or rounded down, 4)
Once you’ve calculated your full-time equivalents, add that to the number of full-time employees on staff to determine whether or not you’re an applicable large employer.
Something else to keep in mind: An ALE may be a single entity or may consist of a group of related entities (such as parent and subsidiary, or other affiliated entities). If the combined number of full-time and full-time equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE – and subject to the Employer Shared Responsibility provision, even if it wouldn’t be an ALE separately.
Get clear direction before the deadlines hit
Need help making sense of it all? Check out our upcoming webinar, Simplifying ACA Compliance, for more information on the new ACA reporting requirements – and guidance on how to gather the necessary employee data and complete the 1095s.