For several reasons, including controlling ACA compliance with the Employer Mandate, employee categories are vital.
Under the Employer Mandate of the ACA, Applicable Large Employers (ALEs), or companies with 50 or more full-time and equivalent employees, must provide at least 95% of their full-time employees and dependents minimum essential coverage that is reasonably priced and satisfies minimum value.
Since ALE status depends on full-time and equivalent counts, employee classifications also play a major role in deciding ALE status. Therefore, achieving compliance in the framework of ACA depends on knowing how to determine ALE status.
Managing ACA compliance needs depends critically on the calculation of ALE status. First, find out whether you are an Aggregate Employer Group of two or more generally owned, linked, or affiliated employers before trying to ascertain whether your company is an ALE.
To ascertain the size of your workforce, first mix the full-time and full-time equivalent employees of the group members.
Most companies lack the thorough awareness of the IRS' controlled group policies that this approach calls for. Best practices include working with an ACA compliance specialist to prevent penalties from not considering aggregated ALE group members.
Another difficulty in computing ALE status is that companies sometimes lack precisely defined full-time and part-time employee designations. Some have a complicated workforce consisting of seasonal labor, independent contractors, and variable-hour employees.
Moreover, job titles do not always match set working hours throughout the company. Calculating ALE status is obviously not easy.
We are here to assist should your company be continuing with its ALE status determination on its own. The several worker classifications have been defined below together with an explanation of whether or not to incorporate them while computing ALE status.
Full-time workers: what exactly are they?
The IRS defines a full-time employee as one who works 130 hours a month or 30 hours a week. For a brief illustration, consider this:
Johnny Rad's Pizza employs eighty people. Of the eighty-five, forty-five are full-time workers as they put in at least thirty hours a week or 130 hours a month. Considered ACA full-time employees, these 45 individuals satisfy the requirements of average 30 hours a week or 130 hours a month. Including full-time workers in the computation helps one ascertain the ALE status.
Definition of Full-time Equivalent Workers
How many hours is full time equivalent workers are those who fall outside of the definition of full-time employment. They are not, then, physical workers. Sum the hours performed by your part-time, variable-hour, seasonal employees each month to get the full-time equivalent personnel for your company.
To accomplish this, total the hours put in by every non-full-time designated designer for a given month. Divide the entire amount then by 120.
This comes out as your full-time equivalent count for the month. To find your ALE status for that month, combine this count with your full-time employee total.
Using counts for every month of the last year, determine ALE status for the present year.
Once you have the monthly counts, figure the average. Should the average be fifty or more, your company will be an ALE for the next reporting year.
Who are part-time workers?
Because of their erratic work schedules, part-time and variable-hour workers often find every week different. ACA rules say a part-time worker puts in less than 130 hours a month.
Although companies are free to provide perks to part-timers, the ACA does not mandate that they extend health coverage.
As was already indicated, nevertheless, the computation of full-time equivalent employees for ALE status still considers the hours of part-timers.
Seasonal Employees Against Seasonal Workers
A seasonal worker is someone who, according to U.S. Department of Labor rules, does labor or services only seasonalally. This workforce classification covers retail employees hired just during holiday seasons and agricultural laborers, for instance.
When figuring ALE status, the IRS mandates that companies include seasonal employees.
Likewise, the IRS only uses the classification of seasonal workers to ascertain whether a person qualifies as a full-time employee under the Look-Back Measurement Method.
In this specific case, a seasonal employee is someone engaged for a job for which the normal yearly employment is six months or fewer and for which the period of employment starts each calendar year at roughly the same time of year, say summer or winter. As a seasonal employee, the IRS lists a ski instructor or a lifeguard.
When deciding ALE status, seasonal workers are also included—with one exception. If the workforce exceeds 50 full-time employees, including full-time equivalent employees, for 120 days or less during the previous calendar year, the employer will not be regarded as an ALE; all employees above 50 who were hired during that period of no more than 120 days will be seasonal.
This basically indicates that if a company mostly employs seasonal workers, it will not be regarded as an ALE.
Independent Workers
Though sometimes referred to as 1099 workers, independent contractors are not formally employees. Their agreements with an employer are rather per-service, instead.
Independent contractors are not employees, hence your ALE calculations do not include them. These employees also do not need benefits, hence your company does not have to give offers of health care either.
Get Assistance with Classifications for Employees
On the Employer Shared Responsibility Final Regulations, the IRS offers further information on the guidelines for deciding who is a full-time employee. Use one of the two IRS-approved measuring techniques to find the hours of an employee whether you're not sure if they work full-time or part-time.
Maintaining the integrity of your workforce depends on proper classification of your employees. Inaccurate classification not only compromises ACA compliance but also exposes your company to possible legal action from state and federal authorities for breaking equal pay regulations, which are fast expanding.
Your company has responsibility for accurate employee classifications; so, it is advisable to routinely check the makeup of your team to prevent any unanticipated problems during filing season.
Turn to Trusaic if your company needs help properly classifying employees, figuring ALE status, and following ACA rules to be 100% ACA compliant.