ACA Full - Time Employees -
What Employers
should know

This article further explores the
following points:

  • What is an ALE ?
  • What requirements must an
    ALE meet?
  • What is the definition of a full-time employee?

IRS Notice CP220J Explained -
An Overview

- Updated september 14, 2020 - 8.00 AM - Admin, ACAwise

When it comes to Affordable Care Act (ACA) reporting, understanding the definition of a full-time worker is crucial. Employers must be able to calculate the number of full-time versus full-time equivalent workers in order to determine their Applicable Large Employer (ALE) status.

What is an ALE?

Applicable Large Employers (ALE) are defined by the IRS as having 50 or more full-time and full-time equivalent employees. These employers are held to a higher standard under the ACA.

What requirements must an ALE meet?

ALEs are required under the ACA to provide health insurance to at least 95% of their full-time employees that meets the Minimum Essential Value (MEC) requirement under the ACA. This means that the health insurance coverage offered to qualified employees has a value that is comparable to what they could purchase on the open market and it is deemed affordable based on their wages.

What is the definition of a full-time employee?

A full-time employee under the ACA, is one that works 30 hours per week or a total of 130 hours per month.

Example: Company X employs 40 workers who work 40 hours per week or a total of 160 hours per month. This company employs 40 full time employees, therefore it does not qualify as an ALE.

What is the definition of full-time equivalent?

Employers can’t ignore their part-time workers when determining their ALE status. The employer may have several part-time workers, the hours that these employees work may add up to that of a
full-time worker.

Example: Company X also employs 20 part-time workers. None of these employees work enough hours each month to be considered full-time employees. However, when the total number of hours worked by the part-time employees is combined, they are equal to the hours that 10 additional full-time employees would work. Therefore, collectively they are equivalent to 10 full-time employees.

What about seasonal employees?

Perhaps an employer hires temporary workers to assist with the business during a busy season. Whether these employees are working full-time or part-time, they are not counted when determining ALE status as long as they have been employed for less than 120 days of the calendar year.

Example: Company X employs 10 seasonal employees to assist with their busy season. There are 5 full-time employees and 5 part-time employees. They are employed to work for 60 days out of the calendar year. These 10 seasonal employees are NOT counted when determining ALE status.

Methods for determining full-time status

The IRS offers 2 different approved methods for determining an employers status. These are used by employers to determine if they are considered an ALE by IRS standards. These methods include:

  • Look Back Method
  • Monthly Measurement Method

The Look Back Method

This is a good option for employers with a diverse workforce that includes a blend of part-time, full-time, and even seasonal employees. When using this method, the employer must choose a period of time between 3-12 months, they will then “look back” at each employee's number of hours during this period.

Employees who meet the following requirement are considered full-time and must be made an offer of health insurance coverage:

The employee worked an average of 130 hours per month during the chosen period.

The Monthly Measurement Method

This is the better option for employers with a more structured work-force and a majority of full-time employees because it assumes that employees are full-time workers. When using this method, an offer of health insurance coverage must be made to workers within 90 days of the date they were hired.

When using this method, administrators should review employees’ hours monthly to ensure that they average 130 hours. Part-time employees will also need their hours tracked on a monthly basis.

Get monthly compliance tracking with ACAwise!

Did you know that ACAwise offers a solution for monthly employee tracking? Our cloud-based software generates a monthly report using the data you provide. We will let you know how many hours your employees worked and determine when they should be made an offer of coverage. We can also track your ALE status and the affordability of your group health insurance.

Reach out to our team to learn more!

Access our resource center for more information about tax relief due to COVID-19. Visit Now