ACA Made Simple
At Viventium, we’re helping to make your ACA compliance simple with compliance that anticipates. We’ve put together the following guide to assist you in understanding the ACA and how it affects your company. Our FAQs break down key ACA concepts into 3 simple categories:
| Determining if your company is an applicable large employer (ALE)
| Determining which employees must be offered health coverage
| Determining if the coverage offered meets ACA requirements
DETERMINING IF YOUR COMPANY IS AN APPLICABLE LARGE EMPLOYER (ALE)
What is an ALE?
ALE stands for applicable large employer. ALEs are subject to the Employer Shared Responsibility provision of the Affordable Care Act (ACA). This means they must offer their full-time employees health coverage that meets specific ACA standards, or they may face potential penalties from the IRS.
How do I determine if my company is an ALE?
Each year, employers determine if they are an ALE based on the average number of employees they employed in the prior year (twelve month) look-back period. If you have on average 50 or more full-time or full-time equivalent (FTE) employees in the prior year look-back period, you are considered an ALE in the current year.
What is a full-time and full-time equivalent employee?
Under ACA, a full-time employee is an employee who works an average of 30 hours in a week or 130 hours in a month. However, it is not only these employees that you must take into account when determining if your company meets the 50-employee threshold. Employers must also add up the monthly hours worked by part-time employees (up to 120 hours per employee) and divide them by 120 to get the number of full-time equivalent employees (FTEs) per month. For example, say you have four part-time employees who each work 60 hours in a month. These four employees would be considered two FTE’s (4 X 60 =240 / 120 = 2) and would be included in the count to determine ALE status. Viventium’s Applicable Large Employer Report can easily perform this calculation for you.
I ran Viventium’s reports and determined that I am an ALE for 2023. Does that mean I need to offer insurance?
The IRS had offered transition relief for 2015, where employers with 50 and 99 full-time and FTE employees during the look-back period did not have to offer health benefits in 2015. For the year 2016 and all future years, however, employers who reach the 50-employee threshold must offer benefits.
DETERMINING WHICH EMPLOYEES MUST BE OFFERED HEALTH COVERAGE
I determined I am an ALE for the current year, and I need to offer health insurance benefits. Do I need to offer the benefits to all my employees?
No. ALEs are required to offer benefits to 95% of their full-time employees. A full-time employee is an employee who averages 30 hours of work per week or 130 hours in a month. Employees whose hours vary must be tested for full-time status.
If my employees have variable hours, how do I determine who is full-time?
The IRS offers two methods for determining which employees are full-time and must therefore be offered health coverage. In the first method, the monthly measurement method, you must track the number of hours worked each month to determine employee benefits for that month. This method can prove to be impractical for many employers as the monthly hours may not be available until the end of the month, not to mention the administrative nightmare of evaluating every single employee on a monthly basis and determining insurance coverage accordingly.
The second method, used by most employers, is the look-back measurement method. This method allows you to designate an employee as full-time or part-time for a designated number of months based on a look-back period. You choose a look-back “measurement period” which is used to determine the employee’s full-time status during the “stability period” that follows. Viventium’s ACA Benefit Status Report can quickly determine your employees’ full-time status during your designated measurement period.
What is a “measurement period” and a “stability period”?
The “measurement period” selected by the employer is a period between 3 and 12 months, during which an employer calculates the employee’s average hours to determine if they reach an average of 130 hours per month. If they average at least 130 hours per month, they are full-time during the stability period. If not, they are part-time during the stability period.
The “stability period” is the number of months where an employee is locked into the full-time or part-time status that was calculated during the measurement period. Full-timers must be offered insurance during the entire stability period, even if their hours decrease.
Must the stability period begin right after the measurement period ends?
The IRS allows employers to designate an “administrative period” of up to 90 days between measurement and stability periods. This allows you to enroll employees in plans and gather the necessary paperwork. For example, you may have a twelve-month measurement period of November 1, 2021 – October 31, 2022, an administrative period of November 1, 2022 – December 31, 2022, and a stability period of January 1, 2023 – December 31, 2023.
Do new hires have the same rules?
New hires will have a separate initial measurement and initial stability period that start from their date of hire or the first of the month following hire. Once new hires complete their initial measurement cycle, they are included in the regular measurement cycle for ongoing employees.
Must I also offer benefits to my employees’ spouses and dependents?
ALEs are required to offer coverage to dependents up to age 26. The ACA does not require employers to offer spousal coverage.
DETERMINING IF THE COVERAGE OFFERED MEETS ACA REQUIREMENTS
I determined which employees are full-time based on my measurement period, and I will be offering them benefits during the stability period. Are there regulations on what the benefits must include and what they can cost the employee?
Yes. The IRS requires that benefits provide at least minimum essential coverage (MEC) and minimum value (MV) and that they are affordable.
Minimum essential coverage means that the health plan includes specific benefits that the IRS has identified as MEC. Generally, all employer-provided group medical plans provide MEC.
Minimum value is a technical, actuarial term that means the plan covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Your insurance broker will be able to tell you whether the health plan(s) you offer provide MV.
For 2023, affordability means that the employee’s share of the insurance premium costs the employee less than 9.12% of that employee’s annual household income.
The IRS offers a choice of three safe harbors to measure affordability of an offer of insurance: W-2 Method, Rate of Pay Method, and Federal Poverty Line Method.
Under the W-2 Method, the employee health coverage contribution cannot exceed 9.12% of Box 1 (Federal Taxable Wages) on his or her W-2.
Under the Rate of Pay Method, the monthly employee health coverage contribution cannot exceed 9.12% of the employee’s hourly rate of pay multiplied by 130 hours. For a salaried employee, the monthly cost cannot exceed 9.12% of his or her monthly salary.
Under the Federal Poverty Line Method, the employee health coverage contribution cannot exceed 9.12% of the Federal Poverty Line.
Viventium is dedicated to keeping you informed of the latest payroll developments and helping you understand the ever-increasing government regulations, but this information is not intended as tax or legal advice. Please consult your tax and law advisors before making any decisions.