FAQs About Key Terms for the Affordable Care Act

A company is an Applicable Large Employer for a given calendar year if it employed an average of 50 or morefull-time employees (including full-time equivalents) in the prior calendar year.

The employer mandate only applies to Applicable Large Employers.

If a company has several entities within a single control group, they are likely to be considered an Aggregated Applicable Large Employer (AALE).

For directions on how to determine whether or not a company is considered an Applicable Large Employer, see this page on how to Determine Applicable Large Employer Status.

A new employer (that is, an employer that was not in existence on any business day in the prior calendar year) is an ALE for the current calendar year if it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees (including full-time equivalent employees) during the current calendar year.

A Full-Time Equivalent (FTE) employee refers to a combination of employees, each of whom is not counted as a full-time employee individually because they are not employed on average at least 130 hours per month, but who, in combination, are counted as the equivalent of a full-time employee

Per the IRS, a full-time employee is employed for at least 30 hours of service per week or 130 hours of service per calendar month. A company can determine its number of full-time equivalent (FTE) employees by adding together the hours of service for all non-full-time employees for the month (not including more than 120 hours per employee) then dividing the total by 120.

More detail on calculating FTEs can be found here

The number of FTE employees is used to determine classifications for ALE and COBRA. It is also used by insurance companies when determining a company's group size. Group size decides which plans a company can purchase and how much those plans cost.

I need help determining if I’m an ALE or not. How do I know how many full-timeand full-time equivalent employees I had last year?

We cannot confirm if a group is an ALE, nor can we help the admin figure out how many full-time  or full-time equivalent employees they have. However, we can provide them with information to help them figure this out on their own (or with an employment attorney). Our Determine Applicable Large Employer Status article provides great information to help them with this calculation. 

An hour of service generally refers to each hour in which an employee is paid, or entitled to payment, for the performance of duties for the employer, and each hour for which an employee is paid, or entitled to payment, for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

This does not include any hour of service performed as a bona fide volunteer, as part of a Federal Work-Study Program or situations where compensation for services performed constitutes income from sources outside the United States.

An Aggregated Applicable Large Employer (AALE) refers to a group of affiliated entities that are under common control, for example: parent and subsidiary.

Aggregated Applicable Large Employers will need to link their 1094-C and 1095-C forms together with other members of their AALE when filing with the IRS. In order to ensure that the Affordable Care Act Compliance product can support a company's AALE structure, the company will likely need to prepare some additional information before they get started with the Affordable Care Act setup process.

Each ALE member within an AALE group with its own EIN must file as its own entity. For Zenefits purposes, each distinct ALE member within a larger AALE group must separately set up the ACA Compliance app, and generate forms.

NOTE: If your companies are linked in Zenefits, we will automatically consider the companies as an AALE and will file any applicable forms to the IRS together. If they aren't linked, we will not file the groups together. If the companies need to be linked, please contact Zenefits Customer Care for assistance.

Affordable coverage under the ACA means that the employee’s required contribution for self-only coverage (meaning the amount to acquire coverage for only oneself, and not the cost for dependents) does not exceed a certain percentage of their household income.

Plan Year BeginningAffordability Percentage
20179 .69%
20189 .56%
20199 .86%
20209 .78%
20219 .83%


All of the plans offered by the employer do not have to meet this affordability threshold — for purposes of the ACA we just look at the self-only employee contribution for the "best plan" that was offered.

Safe Harbors

Because most employers won’t have access to their employees’ actual household incomes, the IRS provides three “safe harbor” methods that can be used to estimate income using information that employers do have. Learn more about those safe harbors by clicking the links below:

Dependent Coverage Transition Relief is one of four types of transition relief available to Applicable Large Employers (ALEs). This relief allows an employer to treat an offer of health coverage to a full-time employee (but not his or her dependents) under a non-calendar year plan as an offer of health coverage to the full-time employee (and his or her dependents) for the calendar months in 2016 that fall within the 2015 plan year.

To qualify for this transition relief, the following two things must be true: (1) the employer must have taken steps during the 2015 plan year to extend coverage under the plan to dependents not offered coverage during the 2013 or 2014 plan years (or both) and (2) the employee must not have been offered dependent health coverage during the 2013 or 2014 plan year.

The Zenefits ACA Compliance app does not support Dependent Coverage Transition Relief.

Minimum essential coverage is defined as most group health plans offered by a large or small employer, or health coverage provided by the government. A plan consisting exclusively of “excepted benefits” does not meet the minimum essential coverage threshold. Exceptions to this include certain limited-scope benefits, such as stand-alone dental or vision plans that are unbundled from medical plans.

The vast majority of medical plans in Zenefits meet the Minimum Essential Coverage threshold. For more information on plans that do and do not count as Minimum Essential Coverage, see this Healthcare. gov page: Types of Health Insurance That Count as Coverage.

Minimum essential coverage and the employer mandate

Starting January 1, 2015, the employer mandate requires that large employers offer coverage that is at least minimum essential coverage to a certain percentage of its full-time qualified employees.

Penalties

If an Applicable Large Employer fails to offer Minimum Essential Coverage to at least 95% of its full-time employees and an eligible employee who was not offered Minimum Essential Coverage receives a tax credit to purchase insurance in the individual marketplace, the employer could be subject to hefty penalties.

To avoid all potential employer mandate penalties, large employers must offer coverage that is not only Minimum Essential Coverage, but also provides Minimum Value Coverage and is considered affordable.

Minimum value coverage refers to a plan that provides Minimum Essential Coverage and provides minimum value. A plan that falls short of minimum value coverage often will still be considered Minimum Essential Coverage.

What is Minimum Value?

A plan is considered to provide minimum value when it pays on average at least 60% of the total allowed cost of benefits covered under the plan. This means that enrollees pay (via deductibles, coinsurance, copayments and other out-of-pocket amounts) on average no more than 40% of the total allowed cost of benefits. Minimum value does not take into account the amount paid for premium.

Confirming Minimum Value

Most employers are already offering plans that meet minimum value, and therefore the vast majority of medical plans offered in Zenefits meet the minimum value coverage threshold. Employers with insured plans can check with the insurer to determine if a plan meets the Minimum Value Coverage standard.

Insurers also must specify on the plan's Summary of Benefits and Coverage if coverage is minimum value coverage. For self-funded plans, administrators will need to calculate whether the Minimum Value Coverage threshold is met.

The Department of Health and Human Services (HHS) provides an online Minimum Value Calculator, along with instructions, that can be used to determine whether a plan meets the Minimum Value Coverage standard. Applicable large employers who do not provide coverage that meets these standards are subject to penalties.

A Designated Governmental Entity (DGE) is part of or related to a federal or state government agency or any Indian tribal government. DGEs have slightly different reporting requirements under the ACA employer mandate.

The Zenefits ACA Compliance app does not support ACA forms for Designated Governmental Entities.

Applicable Large Employers are required to offer health coverage that meet certain thresholds to their “full-time” qualified employees. The phrase “full-time” qualified employees refers to those employees who have worked enough hours to qualify for health coverage.

Typically, a “full-time” qualified employee refers to any employee, including employees classified as part-time or temporary, who averages at least 130 hours of service per month over a set period of time or works 30 hours per week, also known as a measurement period.

"Full-time” qualified employee is a term that specifically denotes employees to whom an employer may be required to offer coverage based on hours worked. This term should not be confused with full-time employees (and full-time equivalents) that are used to determine whether a company is an Applicable Large Employer.

In certain situations, an employee could be "full-time" qualified in terms of hours worked, but the employer is still not required to offer coverage for one or more months. This could be because the employee is in a limited non-assessment period, or because transition relief is being applied.

A Qualifying Offer is an offer of coverage that satisfies all of the following criteria:

A self-funded plan, also known as a self-insured plan, is a health plan where the employer assumes the risk for paying health claims as opposed to purchasing an insurance policy from an insurance carrier, where the insurer assumes the risk.

With a self-funded plan, the company could save the profit margin that an insurance carrier adds to its premium. However, the downside is that the company is responsible for paying out claims itself and the potential risk is larger. Many employers purchase stop-loss insurance to mitigate this risk.

A level-funded plan is a type of self-insured plan wherein the employer pays a steady fee each month. For ACA Compliance purposes, these types of plans are treated the same.

Self-Funded Plans and Minimum Value Coverage

If a company has a self-funded plan, they cannot rely on a carrier to tell them whether a plan provides minimum value and they will need to make that determination themselves. The Department of Health and Human Services (HHS) provides an online Minimum Value Calculator, along with instructions, that companies can use to determine whether a self-funded plan meets the MVC standard.

Preparing for ACA Compliance

Using Zenefits ACA Compliance for a self-funded plan requires the administrator to provide additional information about dependents enrolled in coverage.


Ongoing employees are employees who have completed a standard measurement period and administrative period.

Ongoing employees are measured in the standard measurement cycle, with the exception of new hires who are not expected to work at least 130 hours per month, who are on start date-specific initial measurement periods.

The 98% Offer Method is one of two alternative methods of reporting that may, in certain situations, permit employers to provide less detailed information than under the general method for reporting. ALEs who meet certain requirements to will not need to complete the “Section 4980H Full-Time Employee Count for ALE Member” in Part III, column (b) of Form 1094-C.

The Zenefits ACA Compliance app does not support the 98% Offer Method.

New hires who are not reasonably expected to work at least 130 hours per month have their own start date-specific , called initial measurement periods, which have different start and end dates (but the same duration) than the company’s standard measurement period.

Once new hires complete an initial measurement period and administrative period, they will automatically be shifted onto the company’s standard measurement cycle, and their measurement, administrative, and stability periods will be aligned with other similarly situated employees.

Understanding the Initial Measurement Period

For a new hire that is designated as a part-time employee in Zenefits, their Initial Measurement Period begins as soon as they begin working, and they will be offered benefits if it is determined, over the measurement period, that they are a “full-time” qualified employee.

In contrast, for a new hire that is designated as a full-time employee in Zenefits, they will be offered benefits as soon as their associated waiting period is over -- they will not be required to wait through the duration of the initial measurement period in order to be considered a “full-time” qualified employee for ACA purposes.

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The Qualifying Offer Method is one of two alternative methods of reporting that may, in certain situations, permit employers to provide less detailed information than under the general method for reporting. ALEs who meet certain requirements may furnish a simplified statement to some of its employees rather than providing a completed copy of Form 1095-C.

The Zenefits ACA Compliance app does not support the Qualifying Offer Method.

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