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Understanding the details of the employer shared responsibility provisions under the Affordable Care Act (ACA) can be difficult. One of the first steps is determining whether or not your organization is an applicable large employer (ALE).
In order to know whether or not your organization is an ALE, an aggregated employer analysis must be performed.
The aggregated employer analysis will identify which organizations need to be grouped together for purposes of determine whether the group is an ALE. Under the ACA’s employer mandate, an ALE is defined as an “employer” with 50 or more full-time employees and full-time equivalent employees. However, the term “employer” includes all related entities under the employer aggregation rules. If an ALE, the “employer” is required to offer minimum essential coverage to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets minimum value and is affordable for the employee or be subject to 4980H penalties.
Often times, small organizations with fewer than 50 full-time and full-time equivalent employees are not considered ALEs. However, if they have common ownership, for example, these smaller organizations may be required to be aggregated under the ACA, which can make the total aggregated employee count to 50 or more full-time and full-time equivalent count required to be considered an ALE.
Here’s an example:
A husband and wife own a fast food restaurant. Ownership is an even 50% split between the two of them. The husband and wife also have ownership in a different fast food restaurant. The split there also is 50/50. The first restaurant had a total of 43 full-time and full-time equivalent employees for the 2017 reporting year. The second restaurant had a total of 15 full-time and full-time equivalent employees for the 2017 reporting year.
Viewed independently, neither one of these restaurants is an ALE. However, because of common ownership between the two restaurants, under the ACA they are considered to be part of an aggregated employer group. That group is considered to be an ALE with a total full-time and full-time equivalent count of 58 employees for the 2018 reporting year.
Had the analysis not been performed, the owners would be exposed to potentially significant IRS penalties that could impact the financial well-being of their organization.
Generally speaking the following information is needed to perform an aggregate employer analysis:
- All of the legal entities that could potentially be related through ownership or working relationship
- The business structure and date the business started
- The ownership for each respective entity
Before doing the analysis, make sure to read the IRS guidelines. The IRS provides strict guidelines on how to group entities for purposes of determining ALE status.
The reality here is that each ownership situation is unique. There are many nuances and details that need to be taken into account. When performing an aggregate employer analysis, it may be in your interest to perform the aggregate employer analysis working with outside help who is familiar in dealing with the IRS on ACA issues, specializes in ACA compliance and has expertise in data consolidation.
ALEs failing to abide by the employer shared responsibility provisions of the ACA can be assessed significant penalties by the IRS. If your organization is determined to be out of compliance with the ACA, it will receive IRS Letter 226J. The penalty amounts contained in some of these notices are in the millions of dollars.
Learn more about Letter 226J and how to respond here.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.
