Employer compliance with the Affordable Care Act starts with counting. Counting an employee’s hours per week. Counting an employee’s hours per month. Counting an employee’s hours when they may not even be on the job. Counting an employee’s hours when you don’t compensate them according to time.
Miss a step in any of these counts and a business puts itself at risk of penalties that ratchet up fast.
But before focusing on any of these counts that are continuous, there’s one all-important ACA count that employers need to worry about only once a year.
That’s the very first ACA count:
- Head count
What makes this count so important?
- You do not have to worry about any of the other counts just mentioned if the size of your workforce does not meet a certain threshold. That threshold is 50 or more full-time employees, including equivalents, in the previous calendar year. So if, after applying IRS rules for controlled and affiliated groups, your head count is under the 50-FTE threshold, your workforce is not large enough for your business to have to comply with the ACA employer mandate.
By the same token, if you do make that head count, you are classified as an Applicable Large Employer – or ALE.
Critical to remember: The head count that counts for the once-a-year ALE status check comes from the previous calendar year.
Here’s an example of where confusion might arise:
- In January 2017, you happen to have 42 full-time employees (including equivalents).
- If you had 52 full-time employees (including equivalents) in 2016, you are an ALE for 2017.
Innocent ignorance of the ACA compliance requirements is not an employer’s defense against the significant financial consequences for not meeting responsibilities under the law:
- Offer health insurance of a certain quality and under a certain cost to full-time employees – or pay a coverage penalty
- Report what you did or did not offer to the employees you had to offer it to – or pay a filing penalty
So the IRS – enforcer of compliance with the Affordable Care Act – keeps working on getting the word out. The latest article in its Health Care Tax Tips series is titled “Why Employers Need to Count Employees.” In this post, which covers in official language what we have covered here, also defines:
- A full-time employee
- A full-time employee equivalen
- An aggregated group (commonly owned or otherwise related or affiliated employers)
To read more from the IRS on this topic, find Health Care Tax Tip 2016-50 here.
To learn about these intricacies and others that factor into the ALE status check, watch the first of five videos in our ACA Reporting 101 educational series: Does your business have to comply with the ACA? We tell the Applicable Large Employer’s head-count story told through Santa Claus.