Do the provisions of the Shared Responsibility for Employers apply to me?
That sounds like a straight forward question; however, the answer may not be so straight forward. Let's dive in. The provisions of Section 4980H, including the reporting requirements under Section 6056 and penalty tax applies to "applicable large employers" (ALE). An applicable large employer is one who employed an average of at least 50 full time employees, including full time equivalents, during the preceding calendar year.
The regulations go into details on who is the employer, who is an employee, who is full time, and how to calculate hours for purposes of determining full time equivalents. There may be special considerations for new employers not in existence in the preceding year, as well as the employer's first year as an ALE. For simplification purposes. let's start at the top, to see how to the software functionality coincides with the rules.
Who is an employer? The employer is the company. If the employer consists of multiple entities that are treated as a single employer under Code 414, they would be combined to one company in the system.
Who is an employee? An individual is an employee under the common-law standard. Leased employees, sole proprietors, partners in a partnership, and 2% S corporation shareholders are not considered employees. Use the options under the HRIS employee profile to identify the Statutory classifications, such as Statutory Class, to properly identify the individuals who are not employees under the common-law standard, who can be excluded from the employee totals.
Who is Full Time? The ACA Classification is used to identify who is ACA full-time eligible employee, one who regularly works more than 30 hours. This requires an employer to properly classify their full time population.
How to calculate a full time equivalent? A full time equivalent is calculated by taking all the hours that have been added for the employees who are not ACA full time eligible (this is the ACA part time ineligible and the variable hourly employees), excluding any hours exceeding 120 in a month by a given employee, and dividing those hours by 120.
What is an hour of service? An hour of service is defined as each hour for which an employee is paid, or entitled to payment, for performance of duties for the employer and each hour for which the employee is paid, or entitled to payment, during which no duties were performed due to vacation, holiday illness, incapacity, layoff, leave of absence. The software does not calculate hours of service. The employer must determine the proper hours for the employees.
Do seasonal workers count? Yes, seasonal workers do count towards the ALE calculation; however there is a exception that may allow seasonal workers to be excluded. If the employer has 50+ full time employees (including FTE), if the workforce exceeded 50 full time employees for fewer than 120 days, and the employees in excess of 50 during the 120 day period were seasonal workers, the employer could avoid the ALE status. In order for the software to identify when to apply the seasonal worker exception, employees need to be identified as a seasonal employee in the ACA/Statutory Classification.
The ALE calculator is used to identify how many full time employees were employed on a given month. The idea is simple.
Full Time Employees + Full Time Equivalents - Statutory Exclusions = Total Full Time employees
When using the ALE Calculator, you need to use the previous year's hours of service.
There are some enhancements planned on this calculation before the end of the year. The biggest change will be to make this report a tracking system. Currently, if an employee changes classification today, the report will show that change as applicable back the employee's hire date. We will need to enhance this before we complete the 1095/1094 reporting. Don't be alarmed if you notice this today though.
The second enhancement is to apply the season worker exception, if applicable.