Determining Applicable Large Employer (ALE) Status

You may be asking yourself, “How do I even know if I’m an ALE?” Making this determination is the first thing an employer must do to ascertain its obligations under the Affordable Care Act (ACA), since the employer mandate only applies to “applicable large employers” or ALEs — those with at least 50 or more “full-time employees” or “full-time equivalents.” A full-time employee under the ACA is generally someone who works an average of 30 hours per week, OR 130 hours in a calendar month, which would be treated as equivalent to 30 hours/week. A full-time equivalent is NOT an actual employee. Rather, the number of “full-time equivalents” is based on a formula provided by the IRS. To calculate “full-time equivalents” for purposes of the ACA, an employer must look at the aggregate number of hours worked for each month for all non-full-time employees. A “non-full-time employee” is one who is not regularly scheduled to work 30 or more hours/week. An employee who is not a full-time employee under this standard (including a seasonal employee) for a given month is taken into account in the FTE calculation. This includes “variable hour employees,” or someone who is simply part time.

Variable hour vs. part-time employee
It is important to note that there is a distinction between “variable hour” and “part-time employees.” A “variable hour employee” is one for whom there is not a reasonable basis to believe that they will perform an average of 30 or more hours of service per week.
Employers may not assume that a variable hour employee is in a temporary or high-turnover position, and that such employee may leave before completing an entire measurement period (i.e. the full year). If an employer has hired an employee to work longer than six months and at least 30 hours per week, they must assume the employee will continue to work through an entire measurement period. (Measurement periods are described below).

Calculating FTEs
To calculate the number of FTEs, employers should track and count the number of hours of service for ALL employees who are NOT full-time for each month. Do not include more than 120 hours of service per employee each month. Divide the total number of hours of service by 120 to get your “FTEs.” This calculation should be done for each calendar month in the preceding calendar year to determine ALE status in the current year.

Seasonal workers
The Affordable Care Act specifically addresses the meaning of “seasonal worker” in the context of whether an employer meets the definition of an applicable large employer. Specifically, the ACA generally provides that if an employer’s workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal employees, the employer would not be an applicable large employer. Furthermore, the ACA provides that, for this purpose, “seasonal worker” means a worker who performs labor or services on a seasonal basis, as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 C.F.R. § 500.20(s)(1) and retail workers employed exclusively during holiday seasons. The statute does not address how the term “seasonal employee” might be defined for purposes other than the determination of applicable large employer status.

The following terms are useful in applying the “look back method”:

Initial Measurement Period – The initial measurement period of three to twelve months is the time frame employers may set to determine if a new variable hour employee works the required average of 30 hours per week or 130 hours per month to be considered full time pursuant to the ACA guidelines. This is the time frame you will be tracking the hours of new, variable hour employees to see whether they do work “full-time.”

Administrative Period – This is the time period (may be up to 90 days) when an employer will “look back” at the hours tracked during the Initial Measurement Period to determine if a new variable hour employee has met the requirements of full time status. Note that the combined initial measurement period and administrative periods may not exceed 13 months after the hire date. During this time, if a variable hour employee has been determined to be full time, the employee must be offered health and insurance benefits no later than the first day of the 13th month of employment.

Standard Measurement Period – A Standard Measurement Period is used for “ongoing” as opposed to new employees. The employer may set a standard measurement period of between three and 12 months to determine/confirm whether an ongoing employee has worked the required average of 30 hours per week or 130 hours per month to be considered full time pursuant to the ACA guidelines. If the employer determines that an employee averaged at least 30 hours per week during the standard measurement period, then the employer treats the employee as full-time during the “stability period,” as long as he/she remains employed. This standard measurement period will also be used on “variable hour” employees after the initial determination of full time status.

Administrative Period – Similarly to the administrative period listed above, this is the period of time when the employer will use the Standard Measurement Period to determine if the ongoing employee has met the requirements of full time status. During this time, if an ongoing employee has been determined to be full time, the employee must be offered insurance in no more than 90 days. However, any administrative period used between the standard measurement period and the stability period may not create a gap in coverage. Previously determined full-time employees already enrolled in coverage continue to be offered coverage through the administrative period.

Stability Period – A period of at least 6 months (and can be no shorter in duration than the standard measurement period) that begins at the end of the standard measurement period (and any applicable administrative period), in which an employee who has been classified as full time under ACA guidelines and has been offered health and other insurance benefits will continue to be considered eligible for health and insurance benefits until the average number of hours have been re-determined during the next standard measurement period.

Ongoing Employee – An employee who has been employed by the employer for at least one complete “standard measurement period.”

If an employer determines that it IS an ALE, and thus could be subject to penalties for failing to “play” under the ACA, the next step is to determine which of its employees are considered full-time under the provisions of the ACA.

WHO IS A FULL-TIME EMPLOYEE?

Prepared by Jamie M. Brabston, senior counsel with Lehr Middlebrooks Vreeland & Thompson, P.C.

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