Affordable Care Act (ACA)

Affordable Care Act (ACA)


The Affordable Care Act (ACA) requires companies with more than 50 full-time equivalent employees (often referred to as applicable large employers or ALEs) to either provide health insurance to their employees or pay a penalty for not offering affordable coverage. In 2017, Congress repealed the individual mandate that required individuals to have insurance, but the employer requirements for employers with more than 50 full-time equivalent employees are still on the books.

Full-Time Equivalent Employees

Under the ACA, a full-time employee is an employee who works on average either 1) 30 hours or more per workweek or 2) 130 hours during a month. Employers that have more than 50 employees who meet either of these full-time thresholds are required to comply with the ACA.

But even if employers have less than 50 full-time employees, they may still be required to comply with the ACA. This is because the ACA relies on the concept of full-time equivalent employees.

Under the concept of full-time equivalent employees, employers must take the number of hours worked by part-time employees in a month and determine how many full-time employees working 30 hours per week it would take to work those same hours. Once employers determine how many full-time equivalent employees they have, they must combine that number with the number of their actual full-time employees to determine whether they meet the ACA’s 50 full-time employee threshold. Employers are not required to include seasonal workers or employees who have health coverage under TRICARE or a VA health program in the full-time equivalent calculation.

Examples:

Example 1:

Employer has 35 employees who work 30 or more hours per workweek. It also has 30 employees who work on average 20 hours per workweek for a total of about 2,400 hours in a month. To determine whether Employer meets the ACA minimum employee threshold, Employer must first determine how many full-time equivalent employees it has.

To determine how many full-time equivalent employees it has, Employer would take the total number of hours worked by its part-time employees in the month, 2,400, and divide it by the legally recognized number of hours a full-time employee works in a month, 120 hours. 2,400 divided by 120 equals 20. Thus, it would take 20 full-time employees to work the same number of hours actually worked by part-time employees. 20 is the number of full-time equivalent employees.

Once it has determined how many full-time equivalent employees it has, Employer combines this number with the number of its actual full-time employees. This would be 20 + 35 for a total of 55 full-time equivalent employees. With 55 full-time equivalent employees, Employer is covered by the ACA.

Example 2:

Employer has 35 employees who work 30 or more hours per workweek. It also has 20 employees who work on average 20 hours per workweek for a total of about 1,600 hours in a month. To determine whether Employer meets the ACA minimum employee threshold, Employer must first determine how many full-time equivalent employees it has.

To determine how many full-time equivalent employees it has, Employer would take the total number of hours worked by its part-time employees in the month, 1,600, and divide it by the legally recognized number of hours a full-time employee works in a month, 120 hours. 1,600 divided by 120 equals 13.33. Thus, it would take 13.33 full-time employees to work the same number of hours actually worked by part-time employees. 13.33 is the number of full-time equivalent employees.

Once it has determined how many full-time equivalent employees it has, Employer combines this number with the number of its actual full-time employees. This would be 13.33 + 35 for a total of 48.33 full-time equivalent employees. With 48.33 full-time equivalent employees, Employer is not covered by the ACA.

Calculator

To see exactly where you stand, access the full-time equivalent employee calculator.

Minimum Requirements

Under the ACA, eligible employers must pay a penalty for not offering coverage

  • If they do not offer health insurance coverage to at least 95 percent of its full-time workers
  • If at least one full-time employee received a premium tax credit or cost-sharing subsidy in the federal or state Marketplace

Employers must pay a penalty for not offering coverage that is affordable and provides minimum value

  • If the insurance does not pay for at least 60 percent of the covered health care expenses for a standard population
  • If the employees have to pay more than 9.56 percent of their household income for the employer coverage
  • If at least one full-time employee received a premium tax credit or cost-sharing subsidy in the federal or state Marketplace

What is the premium tax credit?

The premium tax credit is a refundable tax credit that low and moderate income families can use to purchase health insurance through the Marketplace.

Penalties

  • The penalty for each month the employers fails to offer coverage is $2,320 divided by 12, times the number of full-time employees (minus up to 30).
  • The penalty for each month the employer fails to offer coverage that is affordable is $3,480 divided by 12, for each full-time employee receiving a premium tax credit that month (up to a maximum of $2,320 divided by 12, times the number of full-time employees (minus up to 30)).

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