Starting Jan. 1, 2015, the Affordable Care Act mandates insurance and/or penalty costs for every controlled group of employers that qualifies as an “applicable large employer” (ALE.) However, this mandate does not cover employer groups that employed, on average, fewer than 50 full-time employees and equivalents in 2014. And, for calendar 2015 only, employer groups averaging 50 to 99 full-timers in 2014 will also be exempt, if certain additional conditions are met.
Many staffing firms are only now getting around to confirming their ALE status or lack of it.
Eligibility for these exemptions can save staffing firms a lot of money and can help them exploit permanent or one-year competitive advantages. The best candidates for such advantages are small staffing firms, startup firms, direct placement firms, franchisees, “branchisees” and VMS/MSP programs searching for low-cost suppliers.
For eligible staffing firms, the exemptions will also provide at least one additional year to determine long-term coverage strategies under ACA. That time will be very useful, in light of the serious uncertainties that the government recently injected into coverage decisions.
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IRS regulations prescribe a calculation method for this test that includes adjustments to employees’ hours, rounding rules, and other steps. If your firm is close to these thresholds, it is important to use a method that complies with the regulations. Unfortunately, 100 percent compliance is not always possible, because IRS has not provided 100 percent of the rules necessary for precise calculation in all circumstances.
For the ALE calculation, the regulations require a tally of hours worked for each employee for each calendar month. Many staffing firms have stored only their employees’ weekly hours totals, which do not fit neatly into calendar months; and the regulations do not prescribe a method for allocating those hours into months. IRS specifically allows the financially familiar “4-4-5” method of sorting weeks into months for other purposes in the law but, for some unstated reason, did not allow it for the ALE test.
Hours worked for all 12 months of 2014 are not yet available, but there is a special first-year option to use any continuous six-month period in 2014 for the ALE calculation.
I have prepared a set of detailed instructions to help staffing firms with this calculation, including two suggested methods for making reasonable week-to-month allocations.I have also created an Excel spreadsheet that performs the calculations from the employees’ monthly totals for the 12 months of 2014 and for year-to-date averages during 2014. Its monthly averages can easily be used to calculate overall averages for other periods shorter than 12 months.
I will be glad to email these free documents to anyone who requests them. Just email me your request at georgemreardon@aol.com.
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