Published by John Dalmata on April 30, 2015

Are you an ALE?

First, Do you have 50 or more full-time employees (FTEs): The ACA classifies a full-time employee as an employee that works on average 30 or more hours per week, or 130 hours per month. The testing is done on a monthly basis, so if you are not using an initial lookback period to identify (1) who is a FTE and (2) who is eligible for a healthcare benefits offering, all variable-hour employees that work on average 130 hours per month during a defined measurement period fall into the FTE bucket.

As you can imagine, if you are not using an initial lookback period to identify the FTEs for your first stability period, you are, by default, going month-to-month, meaning that your number of FTEs will fluctuate on a monthly basis based on part-time employees moving in and out of ACA FTE status with the ebb and flow of their monthly hours.

At Benetech, we strongly encourage people to invest the time and effort to utilize the lookback method of tracking FTEs, as this will allow employers to lock in their FTEs for their first stability period, get in front of potential compliance issues, and better anticipate the budgetary impact of the ACA.

Of note, if an employer under 50 FTEs has seasonal employees that take his FTE total above 50 for 120 days or less during a calendar year, that employer is not considered an ALE under the seasonal worker exception: IRS Code Section 4980H(c)(2)(B).

Second, do you know the number of Full-time employee equivalents (FTEE) your organization has? Even if your organization has less than 50 FTEs, based on how the ACA accounts for the hours of your part-time employees (PTE), your part-timers can potentially push you into the ALE bucket. Citing Thomson Reuters Health Care Reform for Employers and Advisors, calculating your number of FTEEs is a two step process:

1) Calculate the total hours of service in a month for employees who are not FTEs (Do not include more than 120 hours or service for any employee).
2) Divide the total hours of service from Step 1 by 120 in order to get your FTEE for that month; per Treas. Reg. Section 54.4980H-2(c)(2).

For example, if you have 100 PTEs that each work on average 10 hours/month, The employer’s average sum of monthly part-time hours would be 1000 hours. By dividing 1000/120, you determine that you have 8.3 FTEEs that must be added to your FTE base in order to get your total FTE count. If you already have on average 42 or more FTEs in the previous calendar year, then your organization will fall into the ACA ALE group and be subject to the Pay or Play compliance and ACA IRS reporting regulations.

For 2015, an employer must get their average number of PTE hours from at least 6 consecutive months during the 2014 calendar year (employers may use all 12 months) in order to determine their ALE status for the 2015 reporting year. Again, the months must be consecutive.

For those employers that do not use hourly wages to pay PTEs, but use stipends (for example, some schools pay a flat rate for substitute teachers) the employer will have to adopt a reasonable standard process for translating those contracted/stipend jobs into hours worked.

Finally, is your organization part of a controlled group? If you own several small businesses (e.g., several small franchise companies or several small diverse companies) you must count the combined total of all the employees across all companies when determining your compliance with the shared responsibility rule. Therefore, an employer cannot subdivide his or her business out of ALE status. Check out our earlier blog for more information on small business common ownership and the ACA.

When does my first stability period start?

For those who fall into the ALE bucket, you will be subject to ACA reporting on the first day of your plan renewal month in 2015. For example, for lucky employers with December renewal months, then they will only have one month of mandatory compliance and reporting in 2015. Keep in mind, in order to have taken advantage of this extra 11 months of breathing room, an employer would have had to establish this as their renewal month before December 27 or 2012. For more information on determining your first stability period, read our blog, How Do Non-Calendar Healthcare Plan Years Affect Affordable Care Act Reporting?

So what now?

To wrap this up, if you determined that you aren’t an ALE based on this assessment, Congratulations! At this time, you can table any further strategic planning for dealing with Pay or Play. For some of you, you may be a mere hire away from crossing the threshold. For those who foresee one day crossing into ALE status, consider building your HR admin capabilities and processes now to make flipping the compliance switch as automated a process as possible.

If you are an ALE, now is the time to nail down an ACA compliance solution. Keep in mind, that unless you are already using an integrated HR/Payroll/Benefits portal, implementing an ACA solution will not be instantaneous. There is little ACA service providers can do for clients that are just beginning their buying-process in Q3 2015 to help them with their first year of compliance, especially if they have a January renewal date.

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