Applicable Large Employer

What is an Applicable Large Employer (ALE)?

Applicable Large Employer (ALE) is an entity or employer having at least an average of 50 full-time employees including full-time equivalent employees (FTEs) in a calendar year and is liable to offer health insurance to its workers.

ALEs as per the United States – Internal Revenue Service (IRS)

As per the Internal Revenue Service (IRS) in the United States, employers who are employing fewer than 50 full-time employees are not an ALE and that is eligible for Small Business Health Care Tax Credit. If an employer has at least 50 full-time employees in the preceding year, that is an ALE for employers shared responsibility provisions under the Affordable Care Act mandatorily providing health care insurance to its employees and it is liable for employer information reporting provisions.

What are a Full-time Employee and Full-time Equivalent Employee?

A full-time employee as per Law has served at least 30 hours in a week or 130 hours of service in a calendar month. Whereas the full-time equivalent employee is a group of employees, none of them is a full-time employee individually but combined they are equivalent to a full-time employee. This is calculated in two steps:

• By combining the total number of hours input of work by each full-time equivalent employee, but not exceeding 120 hours per employee
• Then divide all with the number 120 (30 hours for full-time employees per week multiplied by 4 weeks a month)

Adding to full-time equivalent employees (or part-time employees) is only for determining whether the employer/organization/entity is an Applicable Large Employer or otherwise.

What is an Applicable Large Employer officially bound for?

An ALE is liable officially for, as mentioned below:

• Extending minimum essential coverage which is reasonable and that is provided for the minutest value for full-time employees and their dependents
• Do deposit to IRS the shared responsibility payments – for shared responsibility purposes the dependent is an employee’s child (or an employee’s legally adopted child, or a child placed for adoption) who has not reached the age of 26. Spouses are NOT considered as dependents, and neither step nor foster children.
• In all cases, information reporting responsibilities to the IRS

What is more about Applicable Large Employers?

The more about ALEs are:

• If an employer is not a single owner and is a group of companies/entities, they are called members of the applicable large employer / ALE Members.
• Employers are accountable for reporting health coverage conveyance to the IRS what sort of coverage is provided to the employees – under section 6056 of the Law concerning the IRS
• For information reporting purposes, the applicable large employers are necessary to provide the said on Forms 1094-C and 1095-C. The former accompanies the form with the latter and presents the summary of your organization as an ALE. Whereas the latter is the information regarding your employees and the coverage offered to them by you - being the ALE employer
• Employers who sponsor self-insured group health plans are required for more information submission requirements
• ALE status must be declared before the IRS by the employers based on their previous year’s workforce strength
• To avoid tax return penalties, employers under ALE Status are required to offer minimum essential coverage (MEC) which is certified (by HealthCare) medical and health upkeep plan provision to workers      
• Being an employer, you are required to inform your employees about which plan you are offering them first, if they get a group plan then which one best suits their requirements in terms of payments as well as facilities in return; the second if you are paying a part of the premiums on behalf of your worker(s), let them know that too, before withholding such amounts from paychecks. Hence your employees make informed decisions about what they need and what they are buying
• All the employers can be ALEs along with the inclusion of the tax exempted organizations and the government entities, conditional to the meeting of the minimum 50 full-time employees' pre-requisites
• A full-time employee may receive a premium tax credit if
  • The minimum essential coverage offered by the employer is not affordable
  • The minimum essential coverage does not meet the minimum value requisite for it
  • The employee is not from within the 95% employees to those the employer has offered minimum essential coverage
• It is mandatory for the ALEs to file correct tax returns and information with the IRS, failing which they have to face penalties

How can be employer-shared responsibilities payment calculated?

As inferred from the official website of the IRS, the following are the methods for the calculations of the employer-shared payment responsibilities:

If an ALE member does not offer minimum essential coverage to its 95% of full-time employees (with the inclusion of their dependents) is responsible for the first type of employee shared responsibilities payment whereby the employer is bound to, if at least one full-time worker receives the premium tax credit due to purchase of coverage form the marketplace: annually this payment is equal to $2,000 (indexed for future years) per full-time employee, conditional to first 30 employees excluded from the calculation – this sort of calculation is based upon all the full-time employees (minus 30) with the inclusion of all full-time employees who have minimum essential coverage by the employer or from other sources – however, there is transition relief in such a payment on certain conditions

Whereas in another case if an ALE member does not offer minimum essential coverage to 95% of its full-time employees (and their dependents) is accountable for the second type of employer shared responsibility payment, conditional to that one employee receiving premium tax credit due to buying of the coverage from the marketplace. One employee bought coverage from the market due to the coverage from the employer was not of minimum essential value or was not affordable, or the employee was not one within the 95% of the employees to whom the employer offered the coverage on an annual basis the payment is equal to $3,000 (indexed for future years) but only for each full-time employee receiving a premium tax credit. This amount should not exceed the amount the employer would have owed had the employer not offered MEC to at least 95% of its full-time employees (and their dependents).

Who is not counted as a full-time employee?

Following are the categories of employees who are not counted as FTEs:

• Seasonal employees
• Sole proprietor
• 2% S corporation shareholder
• Partner in a partnership

However, an employer can avoid the ALE status if having seasonal workers provided: the employer workforce (full-time employees) exceeds 50 employees for 120 days or fewer, but the employees for 120 days were seasonal workers.

Basic ALE Determination Example

Employer is Not an ALE

• Full-time employees: 40 each month in 2022.
• Part-time employees: 15, each working 60 hours per month.
• Monthly part-time hours: 900 hours.
• Full-time equivalents (FTEs) per month: 7.5 (900 hours divided by 120).
• Annual FTEs: 90 (7.5 FTEs x 12 months).
• Total annual count (FT + FTEs): 570 (480 FT + 90 FTEs).
• Average employees per month: 47.5, rounded down to 47.
• ALE status: Not an ALE for 2023 (total less than 50).

Employer is an ALE

• Full-time employees: 40 each month in 2022.
• Part-time employees: 20, each working 60 hours per month.
• Monthly part-time hours: 1,200 hours.
• Full-time equivalents (FTEs) per month: 10 (1,200 hours divided by 120).
• Annual FTEs: 120 (10 FTEs x 12 months).
• Total annual count (FT + FTEs): 600 (480 FT + 120 FTEs).
• Average employees per month: 50.
• ALE status: An ALE for 2023 (total equals 50).

For more details please visit section 54-4980H-2 of the ESRP regulations