ALEs Must Comply with ACA’s ‘Pay or Play’ Provisions

An employer which has at least 50 full-time employees, including full-time equivalent employees (FTEs), on average during the prior year is generally considered an “applicable large employer” (ALE) under the Affordable Care Act (ACA) for the current calendar year. These employers are subject to the ACA’s employer shared responsibility (“pay or play”) provisions and information reporting requirements (Forms 1094-C and 1095-C).

Here are the steps to determine whether an employer is an ALE:

Determine how many full-time employees the employer had in each month of the prior year. For this purpose, a full-time employee for any calendar month is one who has, on average, at least 30 hours of service per week (130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week).
Determine how many FTEs the employer had in each month of the prior year. To do this, combine the number of hours of service of all non-full-time employees for the month–but no more than 120 hours per employee–and divide that total by 120.
For each calendar month, add the employer’s full-time and FTEs for a monthly total. Add the monthly totals, and divide the sum of the monthly totals by 12. If the result is 50 or more employees, the employer is an ALE for the current calendar year (unless an exception related to seasonal workers applies).

Note: Small employers that individually do not employ 50 or more full-time employees or FTEs may still be subject to the pay or play requirements if they meet the threshold when combined with other companies under common ownership or that are otherwise related. (The rules for combining related employers do not apply for purposes of determining whether a particular company owes a penalty or the amount of any penalty. That is determined separately for each related company).


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