How do I know if my company is an Applicable Large Employer (ALE)?

What is an Applicable Large Employer?

When the Affordable Care Act (ACA) was passed, the way businesses provided health coverage to their employees changed. One of these changes was a mandate that required all Applicable Large Employers (ALE) to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees, along with their dependents. For the purposes of the ACA, a full-time employee is someone who works at least 30 hours a week.

An ALE status occurs when a company has employed at least 50 full-time employees for more than 120 days within a calendar year.

ALE status is also affected by part-time employees by the way of full-time equivalents (FTE). The number of full-time equivalent employees your business has is found by adding the total amount of part-time employee hours in a given month and dividing by 120. Add this calculation to your number of full-time employees, and the total will be what determines your company’s ALE status.

If a company has no prior year to analyze to determine the ALE status, then the ALE status is calculated by the following:

• Predicting what their expected headcount of full-time workers will be on an average month, or,
• Analyzing any months that their business has been in operation to determine if they had 50 or more full-time employees (including full-time equivalents).

Next, let’s look at what an ALE means for your business.

What being an ALE means for businesses

To start, let’s look at an ALE determination example.

Summit Ice Cream started their business in January of 2021 and predicted that they’d have an average of 25 full-time employees. Because of this, they started their business not designated as an ALE company.

After 120 days go by, in the month of May, they had a large enough employee data sample to determine their status. As they’d only hired a few more full-time employees, they retained their status since their total full-time employee count was still under 50.

Starting in June, they had a massive surge in business and had 35 full-time employees as well as 52 part-time employees. After August, the work history from the previous 120 days (May through August) was examined:

• First, full-time employees across the period were calculated, which in this case amounted to 35.
• Second, full-time equivalents were calculated by adding the total part-time hours and dividing by 120. The total part-time hours worked amounted to 1,920, and dividing by 120 totals 16.
• Summit Ice Cream had a combined total of 51 full-time employees and full-time equivalents, thus qualifying them for an ALE status.

ALE business requirements: As stated earlier, the ACA employee mandate requires that all ALE determined businesses must offer at least 95% of its full-time staff (including their dependents) MEC. MEC constitutes health care plans that the ACA deems fulfills the individual shared responsibility policy.

As of 2020, if an ALE company does not comply with this ordinance, then at the end of a calendar year they could be fined $3,860 per full-time employee (less the first 30). This penalty is assessed for all full-time eligible employees in the ALE even if just one employee receives coverage. As this is a heavy fine, it’s in every businesses' best interest to accurately determine whether they are of ALE status, and if so, then offer health insurance to designated full-time employees.

Exceptions to the requirement: The obvious exception to the ACA employee mandate is your business not having an ALE status. Another exemption would be in the event that a full-time employee turns down your offer of health coverage, thereby not requiring you to take any further action.

Necessary paperwork/reporting: Whether your full-time employees accept or decline your offer of coverage, you’ll need to send them and the IRS a 1095-C form (available on the IRS’s government website).

This form is filled out by the employer and must be sent out to employees eligible for coverage by the end of January the following year that they become eligible. Copies of each form sent out need to be sent to the IRS by the end of February (or March if sent electronically).

In addition, employers need to send a 1094-C form to the IRS that relates to their business information, who they should contact for questions, total number of employees, and how many 1095-C forms were sent out.

A 1095-B form is sent by your insurance supplier to employees who accepted your coverage. This form goes into more detail about the provided health care plan and is specific to those employees and their dependents, whereas the C form is broader.

In the event you do not offer insurance, but are a designated ALE, you’re still required to send out 1095-C forms to all your full-time employees and the IRS. You’ll be able to specify on these forms that you’re not providing coverage. This will allow the IRS to document how many eligible full-time employees were not offered coverage within your business.

If an employee chooses to decline your coverage offer, then you’ll have them fill out a waiver of coverage form provided by your insurer. In addition, you’ll indicate on line 16 on the 1095-C form to notify the IRS that the employee declined.

Consider outsourcing HR

If your company qualifies as an ALE, then it’s your responsibility and legal requirement to not only inform all your full-time employees of your offer of health care coverage, but also guide and help them through the process. This duty can become overwhelming on top of all your other duties.

For this reason, following ACA regulations typically takes place through HR. But even then, the HR department can become stressed due to ACA regulations in constant flux. This can lead to mistakes on forms and incorrect offers of coverage that can end up costing your business time and money.

It may be worth it to outsource to ACA experts who can help streamline the complex regulations. They’ll administer and secure the proper forms, accurately determine eligible workers for full time status, and help find the best health care insurer for your specific needs. They'll keep your company ACA compliant so you can focus on other business decisions.

Ready to reach out to an ACA expert who can help?

Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at heartland.us.

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