When companies least expect it, a letter arrives from the IRS, and suddenly ACA compliance becomes very real. We've seen it countless times - businesses scrambling to understand their obligations after receiving that first notice. Luckily, there are easy ways to prevent this. Let's get ahead of that scenario and break down exactly when your business needs to start paying attention to ACA requirements.
Think of ACA compliance like your business compliance vital signs - it needs regular monitoring. You'll need to keep tabs on your full-time employees, part-time employees, and seasonal workers across all your locations. Here's what catches most businesses off guard - you need to track:
Here's where ACA compliance gets tricky - it's not just about counting heads. A full-time equivalent (FTE) employee under ACA isn't necessarily one person. The IRS has specific rules about how to calculate FTEs, and it's crucial to get this right.
For ACA purposes, you start with actual full-time employees (those working 30+ hours per week). Then comes the math for your part-timers: take their total monthly hours (capped at 120 hours per employee), add them up, then divide by 120. The result is your FTE number for part-time staff.
For example, if you have 40 full-time employees and 20 part-timers who each work 90 hours per month, your calculation would look like this: 40 + ((20 × 90) ÷ 120) = 55 FTEs. That would put you over the threshold for ACA compliance requirements. Note that other factors can affect this calculation, and there are different measurement methods that can be used to calculate FTE status. It unfortunately isn’t always this simple.
Remember - this isn't just a one-time calculation. Your business needs to monitor these numbers monthly, and your ALE status for next year depends on your average FTE count for the current year. That's part of why we built ACA Reporter to handle monitoring FTE status.
Here's the short answer: if you hit that magic number of 50 full-time equivalent employees, you're in. But don't worry - this isn't something you need to figure out alone. The key is having the right tracking system in place before you reach that threshold. Trust us, it's much easier to have systems ready than to play catch-up.
The best time to start thinking about ACA compliance? Before you need to. It's like preparing for a marathon - you don't want to start training the week before.
Most businesses don't realize that effective ACA compliance monitoring requires significant lead time. You'll need systems in place to track employee hours, monitor variable hour employees, and document offers of coverage. Setting up these processes can take several months to implement correctly.
From our experience working with growing companies, those who start monitoring when they hit about 40 full-time equivalent employees are best positioned for success. This buffer gives you time to test your tracking systems, train your HR team, and adjust your processes before facing actual compliance requirements.
Consider this: if you wait until you've already crossed the 50 FTE threshold, you're already behind. The IRS requires lookback data for proper reporting, and reconstructing historical data is significantly more challenging than tracking it in real time.
Once you're in the ACA compliance zone, you'll need to file those 1094-C and 1095-C forms annually. But it's not just about the paperwork - it's about maintaining good records throughout the year.
Hit the 50 full-time equivalent employee mark, and you're in. But there's sometimes wiggle room with seasonal workers.
Monthly is best - it's like checking your business's pulse.
Yep, even your work-from-home crew counts toward your total.
Get a reliable tracking system in place - before you need it.
Absolutely. Your workforce this year determines next year's obligations.
We've helped countless businesses navigate these waters with our ACA Reporter software. Whether you're approaching the threshold or already managing compliance, we're here to make it simpler.