Health Insurance: Are You Required To Provide?

Small business owners may be surprised to learn that, starting in 2016, guidelines are changing dramatically for which employers are regarded as Applicable Large Employers (ALE) in regard to the Affordable Care Act (ACA). As of this year, this employer mandate is more complex. Put simply, you may be legally obligated to provide certain employees with health insurance, even if you weren’t required last year. Failure to do so could result in significant penalties.

A company or organization becomes an ALE when it employs an average of 50 or more full-time (FT) or full-time equivalent (FTE) employees. To determine whether the employer mandate is met, the total number of FT plus FTE employees is averaged across the months in the current year, and the result (over or under 50) is applied to the next calendar year.

Who is counted as an employee for ALE criteria? When determining whether an employer is an ALE, the employer must count all of its employees. An FT employee either has an average of 30 hours of service per week during the calendar month or has at least 130 hours of service in a calendar month. To calculate FTEs, the working hours of part-time employees are combined and counted as equivalent full-time employees.

A noteworthy exception is for employers of seasonal workers. If the employer’s workforce (both FT and FTE) exceeds 50 for 120 days or fewer, and any employees in excess of 50 employed during those 120 days are seasonal workers (e.g., a lifeguard hired to work June through August, or a retail cashier hired for the holidays), then that employer is exempt from the mandate.

Some workers should not be included in the calculation of ALE employees. These include sole proprietors, partners in a partnership, 2% or more S-corporation shareholders, temporary employees (hired and paid for through an agency), and independent contractors.

The point? Companies and organizations near the 50-employee mark need to keep careful employment records, and their payroll teams and external payroll providers should use these to determine if they meet the ALE criteria. These crucial protocols should be put in place now and continued moving forward.


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