How to Account for Employees Under the Affordable Care Act

With the recent defeat of healthcare reform in the US Senate, it is important to remember that businesses are still bound by the rules and regulations of the Affordable Care Act. We will be reviewing the basics of how the ACA affects small businesses, large corporations, and individuals. Today’s topic – how to account for your employees under the Affordable Care Act. 

 

Does ObamaCare consider you a large business or a small business?

The Employer Shared Responsibility provisions of the Affordable Care Act are based on the number of employees a business has. A business with over 50 full-time (or full-time equivalent) employees has certain responsibilities to provide group health insurance or make shared responsibility payments.

         > > Read more about the Employer Shared Responsibility Provisions

It’s pretty easy for most companies to determine how many full-time employees they have – if you have 10 total employees, you can be pretty sure your company is not an applicable large employee (ALE). If you have 250, you can be pretty sure you are an ALE.  But, if you have close to 50 full-time employees, or have a significant number of part-time employees, it might not be so simple. Here is how the IRS explains it:

Whether an employer is an applicable large employee (ALE) is determined each calendar year, and generally depends on the average size of an employer’s workforce during the prior year.  If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year and is not subject to the employer shared responsibility provisions or the reporting provisions for the current year. Employers who are not ALEs may also be eligible for the Small Business Health Care Tax Credit.

If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is an ALE for the current calendar year, and is therefore subject to the employer shared responsibility provisions and the employer information reporting provisions.

To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12.

Full-Time Employees – full-time employee is an employee who has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month.

Full-Time Equivalent Employees – An employer determines its number of full-time-equivalent employees in two steps:

  1. Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and
  2. Divide the total by 120.

An employer’s number of full-time equivalent employees (or part-time employees) is only relevant to determining whether an employer is an ALE.  An ALE need not offer minimum essential coverage to its part-time employees to avoid an employer shared responsibility payment. 

There are exceptions for seasonal workers and new businesses. More information can be found at the IRS website’s Q & A on Employer Shared Responsibility Provisions.

Still confused? Your CPA can be a good resource for help navigating the Affordable Care Act. Contact one of Carpenter Evert’s ACA experts at (952) 831-0085 or info@carpenterevert.com.

Speak Your Mind

*