EMPLOYER TAX BRIEF
Counting your employees for ACA compliance purposes
It seems like a simple question: How many full-time workers does your organization employ? But, when it comes to the Affordable Care Act (ACA), the calculation can be complicated — and the answer is important.
The number of workers you employ determines whether your organization is an applicable large employer (ALE). If you’re an ALE, your organization may be subject to a penalty tax for either:
Failing to offer minimum essential health care coverage to all full-time employees (and their dependents), or
Offering eligible employer-sponsored coverage that isn’t “affordable” or doesn’t offer “minimum value.”
The penalty tax is due if any full-time employee is certified to the employer as having bought health insurance through a Health Insurance Marketplace (commonly known as an “Exchange”) and, as a result, a premium tax credit is allowed or paid to the employee. These requirements are referred to as the “employer shared responsibility provisions.”
Your organization is an ALE if you had an average of 50 or more full-time employees — including full-time equivalent employees — during the previous calendar year. Therefore, you’ll count the number of full-time employees you had during 2019 to determine whether you’ll be an ALE for 2020.
An ALE is subject to the employer shared responsibility provisions with the potential penalty mentioned above, and it must comply with certain information reporting requirements.
Full-timers and seasonals
A full-timer is generally an employee who works on average at least 30 hours per week, or at least 130 hours in a calendar month. Meanwhile, a full-time equivalent involves more than one employee, each of whom individually isn’t a full-timer, but who, in combination, are equivalent to a full-time employee.
If you’re hiring employees for summer positions, you may wonder how to count them. There’s an exception for workers who perform labor or services on a seasonal basis. An employer isn’t considered an ALE if its workforce has 50 or more full-time employees in a calendar year because it employed seasonal workers for 120 days or less.
However, while the IRS states that retail workers employed exclusively for the holiday season are considered seasonal workers, the situation isn’t so clear-cut when it comes to summer help. It depends on several factors.
Very much in effect
Although 2017’s Tax Cuts and Jobs Act effectively eliminated the ACA’s individual mandate, the employer shared responsibility provisions (sometimes called the “employer mandate”) remains very much in effect. Contact us for help calculating your full-time employees and ensuring your organization remains in compliance with the ACA.