ACA Play or Pay: Who is an Applicable Large Employer?

While the Affordable Care Act (ACA) contains many provisions, perhaps one of the most discussed is the “play or pay” provision. The ACA’s play-or-pay provision mandates that employers with 50 or more full-time-equivalent employees must offer group health benefits to full-time employees working, on average, 30 or more hours per week, or potentially pay a penalty.

Even if you offer to coverage to such employees, you could still pay a penalty if the coverage is not affordable or doesn’t provide minimum value. This comes into effect through the update of section 4980H of the internal revenue code.

“Applicable large employers . . . are assessed an excise tax during a month that a full-time employee receives a subsidy in the exchange.” Ashley Gillihan explained in a recent BLR webinar. But this begs the question: who are applicable large employers that are subject to this penalty?

ACA Play or Pay: Who is an Applicable Large Employer?

In short, an applicable large employer (ALE) is any employer who averaged 50 or more full-time employees plus full-time equivalents on business days during the preceding calendar year.

ALE status is determined on a controlled group basis. Controlled group refers to, as the name implies, members of a group that are under the control of one entity or group. This might be a parent-subsidiary group, for example. The subsidiary might not have more than 50 full-time employees, but the entire controlled group could. You have to know what the whole controlled group is since it may be more than 50 employees in total, even though it is less than 50 in each sub-group.

An employer is an ALE if the sum of their full-time employees and full-time equivalents each month is greater than 50. This is another place it gets tricky. If you have a lot of part-time employees, you may still have more than 50 full-time equivalents.

Gillihan explained: “For purposes of this rule, you have to count not only full-time employees (those that have 30 hours of service or more on average a week in a month), but [also] your full-time equivalents.” In other words, you look at all other employees and review their total hours of service in a month. Then, divide that number by 120 (which would be a full-time equivalent) to see how many full-time equivalent employees you have. Many times this will push an employer over the threshold.

For anyone who determines they are not an ALE, this means they are not subject to 4980H, the play-or-pay requirements. But other aspects of the ACA still apply. For anyone who determines they are an ALE, they must comply with section 4980H. This doesn’t actually mean you have to provide coverage; it simply means you have to pay the assessable penalties due under 4980H if you choose not to do so.

For more information on applicable large employer status and the rest of the ACA play-or-pay provisions, order the webinar recording of “ACA’s Play-or-Pay Safe Harbors and Guidelines: How to Determine If You Have to Pay.” To register for a future webinar, visit http://store.blr.com/events/webinars.

Attorney Ashley Gillihan is counsel in the Atlanta office of Alston & Bird LLP. He focuses his practice exclusively on health and welfare employee benefit compliance and litigation issues for employers, health plan administrators, and other health and welfare benefit plan service providers.