CALCULATING ALE STATUS
All APPLICABLE LARGE EMPLOYERS [ALEs] are subject to the ACA’s EMPLOYER SHARED RESPONSIBILITY PROVISIONS [ESRP], also referred to as the ACA EMPLOYER MANDATE.
ALEs must make offers of health coverage to their full-time employees as laid out in these provisions [IR CODE 4980H]; and they must report on this compliance to the IRS every tax year [IR CODE 6056].
Below is an explanation of how to calculate ALE STATUS.
If in any doubt on any aspect of ALE STATUS, please contact BENEFITSCAPE, the leading specialist in ACA compliance. It provides an ALE calculation service and can answer any other questions you may have on ACA reporting & compliance.
ALEs = employers with 50 or more FULL-TIME EMPLOYEES.
FULL-TIME EMPLOYEE = an employee with at least 30 hours of service a week.
For this purpose, 130 hours of service in a month is treated as equivalent to at least 30 hours a week.
- NOTE: CONTROLLED GROUP RULES apply to this threshold of 50 full-time employees. So multiple EINs [Employer Identification Numbers] of any size belonging to one CONTROLLED GROUP [under Section 414 of the Inland Revenue Code] qualify as an AGGREGATED ALE and are therefore subject to ACA reporting & compliance. All individual EINs within a CONTROLLED GROUP must file their own ACA reporting to the IRS.
- Again, if in any doubt, contact BENEFITSCAPE.
- NOTE: MERGERS & ACQUISITIONS. The IRS has offered limited official guidance to date on determining ALE STATUS following a merger or acquisition.
- Employers with questions in this area should contact BENEFITSCAPE.
ALE STATUS FOR TY24 BASED ON 2023:
In any tax year, for the purposes of calculating ALE STATUS, your number of full-time employees is based on an average for the preceding calendar year, even for non-calendar health plans. In other words, ALE STATUS for TY24 will be based on your average number of FULL-TIME EMPLOYEES in 2023.
The calculation of this number also needs to include part-time hours of service converted to FULL-TIME EQUIVALENTS [FTEs].
To determine the number of FULL-TIME EQUIVALENTS for a calendar month, all the hours of service accumulated by employees who are NOT full-time are added together. But never more than 120 hours for any single employee should be counted.
This total is then divided by 120 to give you that month’s FTE NUMBER, rounded to the nearest hundredth. For example, 10.248 would be rounded to 10.25 FTEs or 10.243 rounded to 10.24 FTEs.
- NOTE: EXCLUDED HOURS OF SERVICE. An employer does NOT need to include the hours of service of leased employees, sole proprietors, partners, 2% S corporation shareholders, and workers described in IR Code section 3508 [Real estate agents and certain sales people] when determining its ALE STATUS. Those individuals do not count as employees for ACA purposes.
- NOTE: SEASONAL WORKERS MUST BE INCLUDED within your monthly calculations unless you don’t exceed 50 FULL-TIME EMPLOYEES (including FTEs) for more than 120 days, and provided the employees taking you over that limit are indeed seasonal workers.
CALCULATING YOUR FINAL ALE NUMBER:
Add the number of FULL-TIME EQUIVALENTS [FTEs] for each month to the number of FULL-TIME EMPLOYEES for each month.
Then add all 12 months together and divide by 12, rounding down to the nearest whole number. For example, 49.99 would be rounded down to 49 Full-Time Employees.
This is your number of FULL-TIME EMPLOYEES to calculate ALE STATUS.
Correct calculation of ALE STATUS is critical to avoiding IRS PENALTIES for ACA non-compliance. If you have questions regarding IRS CODING or any other aspect of ACA reporting & compliance, please contact BENEFITSCAPE, the leading ACA specialist.
BENEFITSCAPE provides best-in-class ACA services & intelligent FLAG & FIX REGTECH DIAGNOSTICS to 1000s of employers of all sizes, in all sectors, and on all major HCMs.