Applicable Large Employers (ALEs): Compliance is Essential  

If you’re an applicable large employer (ALE), you already know that it’s essential to be in compliance with the Affordable Care Act (ACA)—or pay some stiff penalties. 

But let’s talk about ALEs. Exactly what constitutes an ALE?  

According to the IRS, a company or organization that has an average of at least 50 full-time employees, or full-time equivalent employees (also known as FTEs). The Affordable Care Act deems a full-time employee to be one who works at least 30 hours per week. Being an ALE is determined by looking at the previous calendar year to find the number of individuals you employed full time. 

A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. For example, three employees working 10 hours per week would be equal to 1 FTE. Likewise, two employees each working 15 hours per week would be equal to 1 FTE. 

Note: While you have individuals working for you part-time, you don’t necessarily need to offer them insurance. But when it comes to determining the size of your business, and whether or not you are an ALE, those part-time individuals count toward your total number of employees. 

The Variable-hour Employee 

There is also an important category to take note of—the variable-hour employee. For those individuals, you need to be able to attest (and sometimes attest under oath) that you cannot reasonably determine whether these variable-hour employees are going to be full-time or part-time employees when they start. 

Special Rules for Variable-hour Employees 

There are special rules and flexibilities for variable-hour employees. This type of employee is more accepted in hospitality and in retail, and other professions where you tend to find a lot of variable-hour employees. The Federal Government gives businesses a separate measurement period for those folks. Businesses can take up to 12 months to look at the average hours of their variable-hour employees to determine whether or not they’re going to be full-time employees, and are eligible for benefits.  

It’s vital as an employer that you’re making a reasonable effort to determine whether or not you should be offering benefits to variable-hour employees. Why? The Federal Government imposes harsh penalties on companies that wait one year to offer someone benefits when the company knows from the start, that they should be offering benefits.  

Managing ACA Compliance 

There is some flexibility in how you manage your ACA compliance and to whom you must offer insurance. Let’s briefly talk about the Measurement/Look-back Period, the Stability Period, and the Administrative Period.  

Measurement/Look-back Period 

One key term to understand is the “Measurement/Look-back” Period. The Measurement/Look-back period helps to determine if a variable-hour employee should be classified as full-time under the ACA. It’s the timeframe employers use to track the hours an employee works.  

Many employers use a 12-month Look-back Period, and will align this period with their Open Enrollment. What this means is that an employer will look back at the previous 12 months to see how many hours, on average, their employees worked.  

Employers can use shorter measurement periods, with some even using a monthly measurement period. But be aware—the shorter your measurement period, the more burdensome (from an administrative standpoint) your ACA compliance will be.  

What is the Best ACA Measurement Period? 

So, what is the best ACA Measurement Period for your company?  

From an administrative standpoint, the 12-month Measurement Period is going to be the most straightforward and easiest to manage—but there is no one-size-fits-all answer. It’s essential to speak with a broker, HR professional, trusted advisor, or legal counsel, if appropriate. Remember, different industries and different employers deal with different situations, so it’s important to do your research about what’s best for your company. 

ACA Stability Period 

The ACA Stability Period is the time period that employers must offer health coverage to all employees who were determined to be full-time during the Measurement Period—regardless of how many hours those employees work during the Stability Period.  

For example, using a 12-month Look-back Period, employees who meet the criteria as full-time employees are entitled to health insurance for the following 12 months—regardless if their hours fluctuate in the following year.  

In most cases, the Stability Period must be at least as long as the Measurement Period, and cannot be shorter than six months.  

Note: Employers on a calendar-year health plan must ensure they have completed their Measurement Period before their Open Enrollment period begins. 

The Administrative Period 

The Administrative Period is the time period in which employers run Open Enrollment. Employers must notify employees if they’re eligible for health insurance, or if they are no longer eligible. 

While we’ve given you a refresher on determining the best measurement method for managing your ACA compliance, we’d be remiss if we didn’t remind you about the allowable measure of affordability as you plan your 2024 Open Enrollment program. 

Allowable Measure of Affordability for Plan Year 2024  

ALEs are responsible for offering their employees affordable coverage, and must take into account the allowable measure of affordability for health plans. In 2024, there’s going to be a big change in the allowable measure of affordability for health plans,  

In 2024, the allowable measure of affordability will be reduced to 8.39 percent of an employee’s income.

For this year, 2023, the employee out-of-pocket expenses for the lowest eligible plan was 9.12 percent of an employee’s income.  

What does this mean to you?  

If the only health plan you’re going to offer exceeds 8.39 percent of an employee’s income, you’re going to be out of compliance—but the good news is that you have time to consult with your trusted advisors to help you plan your Open Enrollment strategy for 2024. 

The Takeaway 

If you’re among the many ALEs, here are several important things to remember:  

• For 2024, you will need to offer coverage to at least 95% of eligible employees 

• For 2024, employee out-of-pocket expenses are going to be reduced to 8.39 percent of an employee’s income. For 2023, the employee share of the lowest qualifying lowest cost employee-only plan could not exceed 9.12% of their household income.  

• Choosing the best Measurement Period for your company takes thought and planning. From an administrative standpoint, the 12-month Measurement Period is going to be the most straightforward and easiest to manage—but it might not be the right one for your company. It’s vital to consult your trusted advisors on what’s best for you. 

While we’ve just touched the tip of the iceberg, you can learn more  about how you can maintain ACA compliance. Questions or concerns? Don’t hesitate to contact us today! 

We’ll continue to bring you essential information, valuable insights, and actionable steps to help you understand new regulations, processes, forms, and information to help you maintain compliance.

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