Affordable Care Act 101: Does your business have to comply? Are you an ALE?
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This document provides an overview of determining Applicable Large Employer (ALE) status under the Affordable Care Act for Santa's various businesses: Shiny Nose Brigade, N Squared Solutions, Rent a Righteous Santa, and The 'No Coal for You' Studio. It explains how to calculate employee headcounts, including full-time equivalents, and determine if businesses are under common control and must combine their counts. The combined headcount of Santa's businesses is 99 employees, making them an ALE Group that must all comply with the Affordable Care Act employer mandate.
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Affordable Care Act 101: Does your business have to comply? Are you an ALE?
- 1. Affordable Care Act Reporting 101 Does your business need to comply with the Affordable Care Act? Are you an ALE? April 2016
- 2. © Integrity Data 2016. All rights reserved.
- 3. ALE: Finding the all-important head count • An employer must look at every employee when counting heads for ALE status. • Some employees can be excluded from the head count for ALE status. • Commonly controlled and affiliated companies are treated as one group for determining ALE status. They must combine their head counts. © Integrity Data 2016. All rights reserved. Applicable Large Employer An employer with 50 or more full-time employees, including equivalents IRS classification describing the workforce size of businesses that must comply with the Affordable Care Act
- 4. © Integrity Data 2015. All rights reserved What is the ALE status of these businesses? Shiny Nose Brigade Reindeer-led delivery system for orders generated by Nice-list software. Year-long sleigh-maintenance shop. N Squared Solutions Software firm that develops proprietary business intelligence tools to populate Naughty and Nice lists. Rent a Righteous Santa Staffing firm that screens mall Santas and Little Helpers. Primary communication means with customer base. The ‘No Coal for You’ Studio Workroom for hand-crafted, hand-wrapped goods earmarked for delivery to top 1% of Nice list. © Integrity Data 2016. All rights reserved.
- 5. What is the head count of each company?
- 6. © Integrity Data 2015. All rights reserved Sole proprietors, partners and some shareholders can be excluded from the employee count when calculating ALE status ACA MATH MUST-KNOW © Integrity Data 2016. All rights reserved.
- 7. © Integrity Data 2015. All rights reserved7 Shiny Nose Brigade 50% owned by Rudolph 25% owned by Santa Claus 25% owned by Nicoletta Claus 9 FTEs ALE count 9 © Integrity Data 2016. All rights reserved.
- 8. © Integrity Data 2015. All rights reserved To calculate FT equivalents: • Add the hours of everyone who is not over 120 hours for the month • Divide the total by 120 ACA MATH MUST-KNOW © Integrity Data 2016. All rights reserved.
- 9. © Integrity Data 2015. All rights reserved N Squared Solutions 25% owned by Santa Claus 25% owned by Nicoletta Claus 25% owned by the Easter Bunny 25% owned by the Tooth Fairy Employed 12 full-time developers 1/1/2014 to 12/31/2014 Employed variable-hour IT teams during 2014 spring and summer breaks 18 FTEs ALE count 14 © Integrity Data 2016. All rights reserved.
- 10. © Integrity Data 2015. All rights reserved Businesses that employ veterans can exclude from their ALE count all active and retired service members who are enrolled in a U.S. Department of Defense health plan. They also can exclude any employee who is a spouse, survivor or dependent of an active or retired service member and is enrolled in a U.S. Department of Defense health plan. ACA MATH MUST-KNOW © Integrity Data 2016. All rights reserved.
- 11. © Integrity Data 2015. All rights reserved Rent a Righteous Santa 50% owned by Nicoletta Claus 50% owned by Santa Claus Employed 24 full-time administrators from 1/1/2014 to 12/31/2014 Employed 3,500 variable-hour mall Santas and Little Helpers in 2014 28,788 FTEs ALE count 34 © Integrity Data 2016. All rights reserved.
- 12. © Integrity Data 2015. All rights reserved • If an employer had more than 50 full-time employees (including equivalents) for a time period of 120 days or less • and the excess over 50 were seasonal workers, the employer can exclude all the seasonal workers from the ALE count. ACA MATH MUST-KNOW © Integrity Data 2016. All rights reserved.
- 13. © Integrity Data 2015. All rights reserved ‘No Coal for You’ Studio Employed 30 Production elves in 5-hour shifts 5 days a week from 8/1/2014 to 12/15/2014 137-day period = not seasonal Employed 60 Wrapper elves in 8-hour shifts 5 days a week from 11/1/2014 to 12/24/2014 54-day period = seasonal Employed 80 Painter elves in 4-hour shifts 5 days a week from 1/1/2014 to 7/31/2014 212-day period = not seasonal 50% owned by Santa Claus 50% owned by Nicoletta Claus 52 FTEs ALE count 42 © Integrity Data 2016. All rights reserved.
- 14. Are these companies commonly controlled or affiliated? 14
- 15. IRS criteria for companies to be commonly controlled or affiliated • Common owners? YES: Santa and Nicoletta Claus own all or parts of each company • Provide services to one another? YES: Shiny Nose Brigade, N Squared Solutions and Rent a Righteous Santa all provide services for The ‘No Coal for You’ Studio • Jointly provide services to others? YES: ‘Others’ = everyone one the Nice list These criteria, called the 414 or Controlled Group Rules, are found in Section 414(b), (c), (n), and (o) of the Internal Revenue Code. © Integrity Data 2016. All rights reserved.
- 16. What is the combined head count for these companies? 16
- 17. © Integrity Data 2015. All rights reserved Santa’s ACA compliance reality: Shiny Nose Brigade N Squared Solutions Rent a Righteous Santa ‘No Coal for You’ Studio 9 14 34 42 99 COMBINED ALE COUNT © Integrity Data 2016. All rights reserved.
- 18. © Integrity Data 2015. All rights reserved If the combined number of full-time and full-time equivalent employees for the group is large enough to meet the ALE definition, then each company in the group – called an Applicable Large Employer member – is considered to be an ALE, even if it separately would not be.” “ Tim Berger | Tax Law Specialist, Internal Revenue Service Exempt Organizations Office, Tax Exempt and Government Entities Division Washington, DC in a group call May 15, 2015 With a combined head count of 99, these companies together classify as an Applicable Large Employer (ALE) Group. Each member of an ALE Group must comply with the employer mandate of the Affordable Care Act. © Integrity Data 2016. All rights reserved.
- 19. © Integrity Data 2015. All rights reserved When your company has to comply with the Affordable Care Act – integrity-data.com/aca-education • Of what to do? • And by when? ARE YOU SURE © Integrity Data 2016. All rights reserved.
- 20. © Integrity Data 2015. All rights reserved Thank you for your time To get on the fast and sure track to ACA compliance, please contact us: sales@integrity-data.com 888.786.6162 Integrity Data’s publications and presentations are designed to make employers aware of IRS reporting requirements under the Affordable Care Act, best practices for compliance with those requirements, and the consequences of noncompliance. This material is intended to provide accurate information as of the date posted. It is provided with the understanding that neither Integrity Data, nor the authors and presenters, are rendering legal or accounting advice. With respect to your organization’s decision making for Affordable Care Act compliance, review the information presented with legal counsel specializing in employment law. © Integrity Data 2016. All rights reserved.
Editor's Notes
- Requirements under the employer mandate of the Affordable Care Act are complex: from the pay-or-play rules to the reporting obligations that go with them. Penalties for employer non-compliance with the Affordable Care Act are steep, so non-compliance can mean serious risks. To know whether or not you need to comply and worry about all this; you must know if you’re an Applicable Large Employer – ALE for short.
- If you’re among the many employers who are unsure about their ALE status, we are going to help guide you through what you need to know. To do that, we will turn to several companies in North Pole, Alaska. Through these examples, we will review high-level must-knows and also alert you to fine points that can be easily overlooked.
- A head count of 50 full-time employees – including full-time equivalents – is the threshold for ACA compliance. To determine ACA-defined full-time status, no employee’s service hours can be missed. YET – there are exclusions that can be taken. We will point out those exclusions and show how they can make a significant difference. For a smaller employer, we will also observe how the head-count calculation is only one part of the compliance determination.
- Let’s begin with these four companies and calculate their head counts to determine ALE status – and conclude whether ACA compliance is necessary. We will look at what factors into calculating the head count of each operation; to determine if, on its own, that company is an Applicable Large Employer. Then, we will look at IRS rules for common control and affiliation. This is to see whether, as a group, they classify as an Applicable Large Employer.
- Keep in mind that, as we find the head-count calculation for each company, we will be looking at the workforce of the previous tax year. This is a critical point to remember – ALE determination must be checked annually based on the full-time employee count for the prior calendar year. That is where we get the numbers for the monthly averages we will be talking about. In this example, we are looking at Tax Year 2014 numbers in order to determine whether compliance was required for Tax Year 2015.
- When counting heads to see how close a company is to the ACA compliance threshold, you can take an exclusion for: - Sole proprietors Partners And shareholders in an S corporation who have a 2% or greater share Excluding these workers is allowed because ACA regulations do not classify anyone with such ownership status as a full-time employee. You will see that, in our examples, this exclusion is taken for one company, but not another.
- At Shiny Nose Brigade, one of the three owners – Rudolph – works an average of 30 hours a week during the whole year. Shiny Nose Brigade’s stable workforce and predictable schedules makes for a head count that is easy to figure: By adding the 9 employees’ hours for every month of the year and then dividing the total by 12, we get back to 9. Because that number is not close to 50, Rudolph is advised not to take the partner exclusion. Shiny Nose Brigade is not an Applicable Large Employer.
- Math for the head count at the other three companies gets a tricker because they all have part-time employees in addition to full-time employees. In ACA lingo, part-timers are called “variable-hour” employees. Here you can see the formula for turning variable-hour employees’ time into equivalents for full-time. For every month, the number of equivalents is added to the number of full-time employees and then averaged. Let’s see how that works for N Squared Solutions.
- At this company – which provides intel not only for Santa but for the Easter Bunny and the Tooth Fairy, as well – there is a staff of 12 full-time developers. For the previous year, part-time IT teams were called in at two points during the year. With a head count of 18, N Squared Solutions is nowhere near the 50 threshold for being an Applicable Large Employer. Even though there’s no apparent need to take the exclusion for owners, it was taken after all – bringing the ALE count down to 14.
- Another exclusion that employers can take is for anyone covered on a U.S. Department of Defense health plan; that is, for insurance through the Veterans Administration or TRICARE. Excluding these workers is allowed because of a tiny provision in a highway law passed in July 2015. That provision, which changed the definition of an ALE, traces to a bill that was introduced in 2013 as the Hire More Heroes Act. In the case of the company called Rent a Righteous Santa, hiring because of this ACA change makes for a significant difference in head count.
- Rent a Righteous Santa was founded in 2003 by Mrs. Claus, who was concerned that Hollywood’s portrayal of a mall Santa and his Little Helper that year might create unacceptable role modeling for such jobs in years to come. In 2013, when Mrs. Claus read that the Hire More Heroes bill was introduced, she directed administrators to try recruiting veterans and their family members. By 2014, most employees at Rent a Righteous Santa were workers already covered on a Department of Defense health plan. After taking that exclusion, the ALE head count for this company dropped from 28,788 – which clearly would have made the company an Applicable Large Employer – to 34, which keeps Rent a Righteous Santa under the 50 FTE threshold. An important note about the exclusions for veterans: This change to ACA regulations only enabled employers to exempt affected employees from the count for a business’s ALE status. If – even after applying the exclusion – an employer’s ALE count is 50 or more, these employees must be offered health insurance just as any other full-time employees would be.
- The best known head-count exclusion that can be taken for ALE determination is for seasonal workers. However, the key thing to remember with this exclusion is the definition of “seasonal.” As you can see here, that only refers to a period of 120 days or less.
- At the ‘No Coal for You’ Studio, three groups of elves work three different schedules at three periods of time during the year. Only *one* of these groups fits the “seasonal” classification. Those are the Wrapper elves. And although their schedule makes for the only full-time hours – and they *do* bring the head count to above the 50 FTE threshold, they are *not* factored into the ALE head count because the season they work is shorter than 120 days. So this company, too, is not an Applicable Large Employer.
- Now, just because none of the companies met the 50 FTE threshold individually, Santa is not off the hook for ACA compliance. We must now review whether these operations met IRS rules for being commonly controlled or affiliated. So let’s check this factor in the ACA compliance equation.
- This is the three-point analysis for checking whether the companies are related enough for ACA compliance. In this case, the companies meet the criteria for being both a controlled group and an affiliated group because: there are common owners in Santa and Mrs. Claus the companies serve one another AND together they serve other parties. If you are have any questions about whether you are part of a controlled or affiliated group, check first with your Chief Financial Officer and then with legal counsel specializing in employment law.
- So we need to look at the combined head count to see whether – as a group – these companies meet the Applicable Large Employer classification.
- And – yes: The total head count for these companies is more than 50. It no longer matters that each of the four companies does not, on its own, classify as an Applicable Large Employer. Because they are related to the point of being considered a group – and the group classifies as an Applicable Large Employer, they are each required to comply with requirements of the Affordable Care Act – or face penalties. The conclusion is that a company with 50 or fewer FTEs cannot breathe an ACA sigh of relief *just* based on its own numbers. It needs to make sure it is not part of a commonly controlled or affiliated group.
- Don’t take just our word for it. Listen to an IRS tax law specialist.
- Here’s a link with plenty more resources for you, such as blog posts that give you a deeper look into our workforce calculations for Santa. more educational videos an easy ACA to-do checklist for 2016 An e-book with much more information - and IRS resources, so you can fact-check the guidance we’re giving.
- Thank you for joining us. We hope you found this presentation informative. Please let us know how else we can help you.