Whether an employer is an ALE is determined each calendar year, and generally depends on the average size of an employer’s workforce during the prior year. If an employer has fewer than 50full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year.
A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month
Full-Time Equivalent Employees
An employer determines its number of full-time-equivalent employees for a month in the two steps that follow:
Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and
Divide the total by 120.
An employer’s number of full-time equivalent employees (or part-time employees) is only relevant to determining whether an employer is an ALE. An ALE need not offer minimum essential coverage to its part-time employees to avoid an employer shared responsibility payment. A part-time employee’s receipt of the premium tax credit for purchasing coverage through the Marketplace cannot trigger an employer shared responsibility payment.
Example – Employer is an ALE
Company Y has 40 full-time employees for each calendar month during 2016.
Company Y also has 20 part-time employees for each calendar month during 2016, each of whom has 60 hours of service per month.
When combined, the hours of service of the part-time employees for a month totals 1,200 [20 x 60 = 1,200].
Dividing the combined hours of service of the part-time employees by 120 equals 10 [1,200 / 120 = 10]. This number, 10, represents the number of Company Y’s full-time-equivalent employees for each month during 2016.
Employer Y adds up the total number of full-time employees for each calendar month of 2016, which is 480 [40 x 12 = 480].
Employer Y adds up the total number of full-time equivalent employees for each calendar month of 2016, which is 120 [10 x 12 = 120].
Employer Y adds those two numbers together and divides the total by 12, which equals 50 [(480 + 120 = 600)/12 = 50].
So, although Company Y only has 40 full-time employees, it is an ALE for 2017 due to the hours of service of its full-time equivalent employees.