On June 25, 2015 the Supreme Court affirmed the Affordable Care Act (ACA). Many of the issues surrounding the ACA are still creating confusion in the business community, including not-for-profits. This article provides considerations for small and midsized not-for-profit organizations.
Under the ACA’s employer shared responsibility provisions, certain employers (called applicable large employers or ALEs) should offer either minimum essential coverage that is “affordable” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS.
The determination is a critical calculation that delineates whether you have more than 50 full-time equivalent employees (FTEs). Although many not-for-profits will fall below the threshold, it is important to go through the necessary steps to determine applicability to your organization. Each organization should run the calculation every year–and on a monthly basis–to determine whether you are an ALE.
The regulations permit the use of two measurement methods for identifying full-time employees. The most common approach can be done using 30 hours per week or 130 hours per month as the denominator and is described in more detail below:
A good place to start is with the “130 hours per month” plan. After all, why do something 52 times a year when you only have to do it 12 times? Basically, you determine the number of full-time employees you have by listing all workers who hold a full-time position or work more than 130 hours per month (or 30 hours per week) for each month of the year. Let’s call that number FTE1.
Next, take all other hours worked (less federal or state “work study” hours for those in the higher education world) and divide by 130 hours per month (or 30 hours per week). Let’s call this number FTE2.
Add FTE1 and FTE2 together to get FTE3. If FTE3 is 50 or greater, you are an ALE. Now, if FTE3 is close to 50, you might:
• Analyze your workers in FTE3 to see if any might qualify as seasonal workers and could be excluded.
• Re-calculate FTE1 and FTE2 based on 30 hours per week (rather than 130 hours per month) to see if the FTE3 number might be lowered.
• Explore the potential advantages of the more complicated look-back method.
This revised FTE3 is your “final answer” and determines whether or not you are an ALE.
What Being an ALE Means
If your organization is an ALE for a given year, get familiar with the new reporting requirements (e.g. Form 1095-C filing), including the employer shared responsibility provisions and potential payments. In order to avoid payments under the employer shared responsibility provision, an ALE should provide affordable health coverage that provides a minimum level of coverage to your full-time employees (not full-time equivalents) and their dependents (not spouses).
For more information, download the PDF: document IRS Publication 5208, Affordable Care Act: Are You an Applicable Large Employer?
Article credited to the AICPA.
Davis & Hodgdon Associates CPAs is a full-service public accounting firm with offices in Williston and Rutland Vermont. The firm is a member of Vermont Businesses for Social Responsibility (VBSR), Vermont Business Environmental Partnership (VBEP), Lake Champlain Regional Chamber of Commerce (LCRCC), Vermont Chamber of Commerce, and Women Business Owners Network (WBON). The firm serves its clients by providing progressive, proactive services through expert staff, sophisticated technology, and unparalleled efficiency.