Content updated May 31, 2018
When a company is determining ALE status to see whether they are large enough to need to comply with the Affordable Care Act, they should consider every employee when calculating the headcount.
In the tally toward that all-important threshold for an Applicable Large Employer, 50 full-time employees including equivalents, – you can exclude certain company owners from the ALE count:
- Sole proprietors
- Partners in a partnership
- Shareholders in an S corporation with a 2% or greater share
This exclusion is permissible because ACA regulations do not define anyone with such ownership status as a full-time employee.
Time element for the ALE calculation
Employee head count is always calculated for the workforce of the previous calendar year.
- Add the number of full-time employees for each month of the prior year to the number of full-time equivalents per month for the prior year.
- Divide the total by 12.
- If an employer has at least 50 full-time employees, including full-time equivalents, on average during the prior year, the employer is considered to be an ALE for the current calendar year.
Differences that a head-count exclusion can make
As is the case with other exclusions from the ALE head count, excluding owners from the ALE count can make a difference for businesses teetering on the 50 FTE threshold. As seen in the example below:
N Squared Solutions has 47 full-time employees and 6 variable hour employees. Bringing them to an ALE tally of 53 full-time equivalent employees. At 53 total employees, N Squared Solutions would be required to comply with the ACA. By excluding the four owners, this brought their total headcount down to 49 employees. Which would NOT qualify them as an ALE and they would NOT be required to comply with the ACA.
Commonly Controlled Groups & ALE Determination
If your company is a commonly controlled group (i.e. common ownership or related entities) the headcount of each member must be combined in the ALE calculation. In other words, each group would need to be combined and treated as a single employer for determining ALE status. Please see the example below:
The companies in this example have common ownership and are considered to be an Aggregated Group. Therefore as previously mentioned, all of their headcounts must be combined when determining ALE status. So although each individual company does not classify as an ALE; they are still required to comply with ACA because collectively the headcount is over the 50 threshold.
Resources to simplify understanding of ACA compliance
To learn about other exclusions that can be taken from the ALE head count – and its effects:
- Find a high-level view in first ACA for Santa video, Confused about the Affordable Care Act and Whether Your Business Needs to Comply? Santa Is Trying to Figure This All Out, Too
- Dig into the weeds with these blog posts:
To learn more about the definition of a Commonly Controlled Group:
- Please review the Internal Revenue Code, section 414, for further detail.