Counting to fifty: how the employer mandate really counts your staff

The test is a look-back

An employer is an applicable large employer for a given calendar year if it averaged 50 or more full-time equivalent employees across the previous calendar year. That single sentence contains most of what employers get wrong, because it is a look-back rather than a snapshot.

Grow through 50 employees in August and you do not become an ALE in August. You become one the following January, which means a business that counts properly always has months of warning. A business that counts in headcount on a random Tuesday has none.

Thirty hours is full time

For this purpose a full-time employee is one averaging 30 or more hours of service per week, or 130 hours in a calendar month. Not forty. This catches employers whose entire scheduling model is built on 32-hour weeks precisely so that staff are, in the ordinary sense, part time.

Hours of service also include paid leave, holidays and jury duty, not only hours actually worked. A generous paid-time-off policy adds hours to this count.

Part-time hours roll up

Part-time employees are not excluded, they are converted. Add up every part-time employee's hours of service for the month, cap each individual at 120, divide the total by 120 and drop the fraction. That figure is added to your full-time headcount to give the month's full-time equivalents.

Worked through: 38 full-time employees, plus 22 part-timers averaging 65 hours a month. The part-time hours total 1,430. Divided by 120 that is 11.9, which becomes 11. Thirty-eight plus eleven is 49 full-time equivalents. Not an applicable large employer, by one.

That example is deliberately close to the line, because the businesses that need to count carefully are exactly the ones near it. Average the twelve monthly figures across the year and round down to get the annual number.

Common ownership aggregates

Businesses under common control are treated as a single employer for the count, even when they file separately, run separate payrolls and have never shared an employee. Three restaurants with 20 staff each under one ownership group are one 60-employee applicable large employer.

This is the trap that catches multi-entity owners most often. Aggregation applies to the count. The offer requirement and any penalty are then applied at each individual entity level, which is an uncomfortable combination if nobody has looked at it before.

What being an ALE actually requires

Two things. First, offer minimum essential coverage to at least 95% of your full-time employees and their dependent children up to age 26. Spouses are not included in that requirement. Second, make sure the coverage you offer is both affordable and provides minimum value.

Affordability is measured against the employee's required contribution for the lowest-cost, self-only, minimum-value plan, as a percentage of income that is indexed annually. Because nobody knows an employee's household income, three safe harbours exist: W-2 Box 1 wages, rate of pay and the federal poverty line.

Minimum value means the plan pays at least 60% of the total allowed cost of benefits and provides substantial coverage of inpatient hospital and physician services. The second clause exists because plans were once designed to reach 60% actuarial value while covering almost no hospital care.

The reporting is where notices come from

Applicable large employers file Forms 1094-C and 1095-C, coding every full-time employee month by month for what was offered and what it cost. In our experience most penalty letters are not about employers who failed to offer coverage. They are about employers who made a perfectly compliant offer and coded it wrong.

Keep the offer evidence, the signed waivers and the contribution history as you go. Reconstructing twelve months of codes from memory in March is not a project anybody enjoys, and it is not always possible.

Thresholds and percentages referenced here are indexed and change annually. Confirm your own position with your counsel or tax adviser.