Understanding 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.
Below is an example:
A husband and wife own a business. Ownership is an even 50% split between the two of them. The husband and wife also have ownership in a different business. The split there also is 50/50. The first business had a total of 37 full-time and full-time equivalent employees for the 2017 reporting year. The second restaurant had a total of 19 full-time and full-time equivalent employees for the reporting year.
Viewed independently, neither one of these businesses 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 56 employees for the 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.
PayNortheast can help. Our Payroll System calculates, processes and files your 1094C and 1095C forms for you each year. In the event the IRS contacts you regarding the filing for a specific employee, PayNortheast will correspond with the IRS on your behalf.
Learn more about PayNortheast's products and services.