What Is An Applicable Large Employer?
What Is An Applicable Large Employer?
Introduction
An Applicable Large Employer (ALE) is a term used in the United States to describe an employer who is subject to the Employer Shared Responsibility provisions under the Affordable Care Act (ACA). ALEs are required to offer affordable health insurance coverage to their full-time employees or face potential penalties.
Definition
An ALE is defined as an employer who has employed an average of at least 50 full-time employees including full-time equivalent employees (FTEs) during the previous calendar year. The determination of ALE status is made on a company-wide basis meaning that all entities under common control such as subsidiaries or parent companies are considered together.
Calculating Full-Time Equivalents
In order to determine the number of FTEs an employer must calculate the total number of hours worked by part-time employees in a month up to a maximum of 120 hours per employee then divide that number by 120. The result is added to the number of full-time employees to obtain the total number of FTEs for a given month. This monthly calculation is done for the entire previous calendar year to determine ALE status.
Requirements for ALEs
Under the ACA ALEs must offer affordable health insurance coverage to their full-time employees that meets minimum essential coverage requirements. Affordable coverage means that the employee’s share of the premium does not exceed a certain percentage of their household income. Failure to offer such coverage may result in penalties if at least one full-time employee receives a premium tax credit for coverage through the Health Insurance Marketplace.
Penalties for Non-compliance
If an ALE fails to offer coverage to at least 95% of its full-time employees their dependents at least one full-time employee receives a premium tax credit through the Marketplace the employer may be subject to what is known as the Employer Shared Responsibility Payment. This payment is a non-deductible penalty is calculated based on the number of full-time employees excluding the first 30 employees.
Conclusion
Being an Applicable Large Employer means having significant responsibilities under the Affordable Care Act. ALEs must meet certain coverage requirements offer affordable health insurance to their full-time employees. Failure to comply with these provisions may result in penalties. It is vital for employers to understthe criteria for ALE status the obligations that come with it to avoid any potential issues with the IRS ensure compliance with the law.
