The Ultimate Guide to Applicable Large Employer Benefits

Are you an Applicable Large Employer (ALE) looking for affordable, compliant health benefits for your employees? Schedule a call with a PeopleKeep personalized benefits advisor to learn more about your options.

Understanding the Employer Mandate

The Affordable Care Act (ACA) introduced specific rules that certain organizations must follow. One important rule is the employer mandate, which requires ALEs to provide affordable health insurance to their employees. If they don’t, they could face costly penalties from the IRS.

Many employers might not even realize they are classified as an ALE. For those who do, offering traditional group health plans can be expensive and inflexible, often not meeting the unique healthcare needs of all employees. Additionally, the ACA has reporting requirements that can be confusing.

This guide will explain what ALEs are, the requirements they must meet, the penalties for non-compliance, and the types of health benefits that keep them compliant with the ACA.

What is an ALE?

An ALE is any organization that has 50 or more full-time or full-time equivalent (FTE) employees. If a company averaged at least 50 employees during the previous calendar year, it is considered an ALE for the current year, even if it doesn’t always have that many.

If an employer has fewer than 50 FTEs, they are not classified as an ALE, which means they are not required to provide health insurance or face penalties.

What is a Full-Time Equivalent Employee?

Understanding the difference between full-time employees and FTEs is crucial for determining if your organization qualifies as an ALE.

• Full-Time Employee: An employee is considered full-time if they work an average of 30 hours a week or at least 130 hours in a month.
• Full-Time Equivalent (FTE): To calculate FTEs, you combine the hours worked by all part-time employees in a month and divide that total by 120.

Note: Certain employees, like sole proprietors or partners, do not count as employees for this calculation.

How to Calculate Your ALE Status

To find out if you’re an ALE, follow these steps:

1. Count Your Full-Time Employees: Add them up.
2. Calculate Your FTEs: Total the hours worked by part-time employees, divide by 120, and add this to your full-time employee count.

It’s important to recalculate your FTEs each year since your employee numbers can change.

What is the Employer Mandate?

Under the ACA, ALEs must follow the employer mandate, which requires them to offer their full-time employees and their dependents a health insurance plan that is:

• Affordable: The lowest-cost plan for self-only coverage should not exceed 9.02% of the employee’s household income for 2025 (up from 8.35% in 2024).
• Minimum Value: The plan must cover at least 60% of average healthcare costs for a typical population.

What are the Penalties for Non-Compliance?

If an ALE fails to meet the employer mandate, there are two types of penalties:

1. Penalty for Not Offering Coverage: If an ALE doesn’t offer minimum essential coverage (MEC) to at least 95% of full-time employees, they face a penalty of $2,900 per employee in 2025.
2. Penalty for Unaffordable Coverage: If any employee qualifies for a premium tax credit due to the employer not offering affordable coverage, the penalty is $4,350 per employee in 2025.

Employers are not subject to both penalties; only the greater one applies.

What are the Tax Reporting Rules for ALEs?

If your organization is classified as an ALE, you have specific tax reporting requirements:

1. Complete Form 1095-C: This form details the healthcare coverage offered to employees and helps the IRS determine if you owe any penalties.
2. File Form 1094-C: This is a cover sheet for your 1095-C forms, requiring general information about your organization and the number of employees.

It’s best to consult with a tax professional to ensure these forms are completed correctly.

How Can ALEs Offer Personalized Health Benefits?

Even large employers can struggle to provide health insurance. If you’re looking to meet the employer mandate while offering good healthcare coverage, PeopleKeep has solutions to help.

1. Individual Coverage HRA (ICHRA)

With an ICHRA, employers provide a fixed monthly allowance for each employee to use on an individual health insurance plan of their choice. This allows for customization based on the needs of different employees.

2. Integrated HRA (GCHRA)

If you already have a group health plan, you can add an integrated HRA to cover out-of-pocket expenses not fully paid for by your health plan. Employees must be enrolled in the group plan to participate.

3. Employee Stipends

Stipends provide a fixed amount of money to employees to help cover healthcare expenses. While stipends alone don’t meet the employer mandate, they can enhance an existing ACA-compliant benefit.

Final Notes

Navigating the requirements of being an ALE can be challenging, but understanding your obligations can help you avoid penalties and offer valuable health benefits to your employees.?

FAQs

Who is considered a large employer under the ACA?

A large employer under the Affordable Care Act (ACA) is any business that has 50 or more full-time employees or full-time equivalents (FTEs) in a calendar year. If your company meets or exceeds this threshold, you’re considered an “Applicable Large Employer” (ALE), which means you need to offer affordable health insurance to your full-time employees or face potential penalties.

How do you calculate if you are an Applicable Large Employer (ALE)?

To find out if you’re an ALE, you need to add up the total number of full-time employees (those working 30 or more hours per week) and full-time equivalent employees (part-time employees whose hours are combined to create the equivalent of full-time workers). Divide the total number of hours worked by part-time employees by 120 to get the full-time equivalent. If the total of full-time and FTE employees equals 50 or more, you are an ALE.

What is employer benefits administration?

Employer benefits administration refers to the process of managing employee benefits, such as health insurance, retirement plans, and other perks offered by a company. It includes tasks like enrolling employees in benefit plans, handling employee inquiries, managing compliance with laws like the ACA, and ensuring that the company offers the right benefits at the right time.

How do I know if my employee is ACA eligible?

Your employee is ACA eligible if they work 30 or more hours per week or 130 or more hours per month. Under the ACA, employers are required to offer affordable health insurance to all full-time employees, defined as those working these hours. You can also use a measurement period (usually 3 to 12 months) to track how many hours employees work and determine their eligibility for coverage.

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