When you reach 50 or more employees, business gets more complicated. Not only do you start to feel growing pains organizationally, but you start to feel it with health insurance costs, too (assuming you have been providing it already). But, technically, you don’t “have to” until you’re an Applicable Large Employer (ALE), right?
When do you have to make a change?
If your organization has been floating around the 50 employee mark, you’re probably worried about what the ALE status means. Although it’s not exactly simple, you can use this online FTE calculator to know where you’re at!
It is important to remember that you won’t be liable for the ALE shared responsibility until the tax year following when your Applicable Large Employer status changes. In addition to that tax bill, you should also expect an increase in your traditional group insurance costs.
“But what about the penalty?”
Almost everyone we talk to asks the same question about the infamous “penalty” for large employers who don’t provide their teams with health coverage. This is one reason why your traditional group insurance rates go up once you hit that mark: insurance companies know that you “need” it to get out of that infamous “penalty.”
However, you will notice something very important from the IRS: the word penalty is never used. The mandate is that large employers must help their people out in one of two ways: directly, by providing their own health insurance to their people, or indirectly, by letting their people use tax credits and billing the organization once the numbers are balanced. This is not a penalty; it is a payment. Yes, you’re forced either way, but you do get to pick how you pay.
The Applicable Large Employer “Formula”
There is never a magic equation between the costs of healthcare, the size of your organization, and the number of people you have on your team. But, there certainly is a science behind finding the best way to care for your team while trimming costs as much as possible.
Let’s breakdown the shared responsibility of a group that has exactly 50 full-time equivalent employees (FTE). To start, they get the first 30 employees for “free” (no shared responsibility). Then there is part A or part B of the shared responsibility payment for the remaining employees.
If they offer nothing, they are liable for part A for all final 20 employees. If they offer at least Minimum Essential Coverage (MEC), then they are liable for part B of all employees who use tax credits. The final shared responsibility payment will always be considered the lesser of those two amounts.
One-size never fits all
Determining the right calculation for your group is certainly quite sophisticated, but it’s not impossible for someone who knows their spreadsheets. However, even the calculation shown above does not account for one of the most important factors: what does each one of your team members need uniquely when it comes to benefits?
In an effort to cut costs, many Applicable Large Employers have sought out Christian health care sharing ministries, self-funded insurance plans, and even the new individual HRAs as alternatives to traditional group insurance. But if you’ve ever won that awkward hat at the carnival, you’d agree that one size never truly fits all.
Large, universal changes can be difficult on a team of unique people. To retain top talent, it is essential to keep a large menu of options available to care for your team exactly where they’re at.