Question: An employer with fewer than 50 full-time employees in 2017 has now exceeded 50 full-time employees at some point in 2018.  When is the employer subject to the ACA employer mandate pay or play rules, and when does ACA reporting apply?

Compliance Team Response:

The ACA employer mandate pay or play rules apply to employers that are “Applicable Large Employers,” or “ALEs.”  In general, an employer is an ALE if it (along with all members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.

In other words, you always look to the average number of full-time employees (including full-time equivalents) in the prior calendar year to determine ALE status.  All entities in the employer’s controlled group are included in this count.

This means that an employer’s fluctuation above and below 50 full-time employees (including full-time equivalents) does not have any effect for the current calendar year. The average over the course of the full current calendar year will determine wither the employer is an ALE for the subsequent calendar year.

Below includes a detailed summary of how to calculate ALE status and examples of how that would affect ACA reporting status.

To summarize:

Averaging Fewer Than 50 Full-Time Employees (Including Full-Time Equivalents) in 2017

• An employer averaging fewer than 50 full-time employees (including full-time equivalents) in prior calendar year 2017 is not an ALE in current calendar year 2018.

• The employer is not subject to subject to the ACA employer mandate pay or play rules in 2018 (no potential §4980H penalties) regardless of the number of full-time employees at any point in 2018.

• Therefore the employer is not subject to 2018 ACA reporting under §6056 (which would have been reported at the beginning of 2019).

• (Note that non-ALE employers with a self-insured medical plan must report under §6055 via Forms 1094-B and 1095-B.)

Averaging 50+ Full-Time Employees (Including Full-Time Equivalents) in 2018

• If the employer averages at least 50 full-time employees (including full-time equivalents) in the current calendar year 2018, the employer will be an ALE in calendar year 2019.

• In that case, the employer would be subject to the ACA employer mandate pay or play rules in calendar year 2019.

• This means that the employer must offer minimum essential coverage that is affordable and provides minimum value to its full-time employees in 2019 to avoid potential penalties under §4980H.

• The employer would also be subject to ACA under §6056 reporting for 2019, which would be reported at the beginning of 2020 via Forms 1094-C and 1095-C.

Regulations

Emploer Mandate Pay or Play

ACA Employer Mandate Penalties

Treas. Reg. §54.4980H-1(a)(4):

(4) Applicable large employer. The term applicable large employer means, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. For rules relating to the determination of applicable large employer status, see §54.4980H-2.