We continually talk with Christian colleges, seminaries, and universities who are under the impression that they are not an applicable large employers (ALE) for purposes of the affordable care act – until they learn more about the ALE calculations…


Troas Bible College (TBC) is a private college and a public charity under IRC section 501(c)(3) and section 170(b)(1)(A)(ii). We sent TBC’s controller, Lisa, an email “head’s up” asking her if TBC was an applicable large employer (ALE) for 2015. She wrote back and said, “No. We are a small employer because we only have 37 full-time employees who work over 30 hours a week.”

We replied that the calculation involved more than just “full-time employees”. This led to a phone call and, when we ran the calculations, TBC had 53 “FTEs” (full-time equivalent workers). That meant a lot more work for TBC – but they also avoided potentially large penalties.

*Note that there are transitional rules for 2015 that generally mean that if your 2014 ALE calculation results in 99 or fewer “FTE5s” (see below), you might not be an ALE for 2015.


From the IRS website:

Identifying Full-Time Employees
Determining which employees are full-time employees is central to the employer shared responsibility provisions.
An employer must identify its full-time employees to determine:
• If it is an ALE, and, therefore, subject to the employer shared responsibility provisions;
• To whom it must offer minimum essential coverage to avoid an employer shared responsibility payment; and
• The amount of any potential liability for an employer shared responsibility payment. Note that an employer is not obligated to calculate its liability, and should not make a payment without first being contacted by the IRS.

In general, for purposes of the employer shared responsibility provisions, a full-time employee is, for a calendar month, an employee employed on average at least 30 hours of service per week, or 130 hours of service per month.

From IRS Publication 5208, Affordable Care Act: Are you an applicable large employer?:
“If you are an applicable large employer, you are subject to the employer shared responsibility provisions and may be subject to one of two potential employer shared responsibility payments for a given month if at least one of your full-time employees received the premium tax credit (PTC) for purchasing coverage through the Health Insurance Marketplace (Marketplace) and for that same month you either: (1) did not offer coverage to at least 95% (70% for 2015) of your full-time employees (and their dependents) or (2) you offered such coverage but at least
one of your full-time employees received the PTC (because the coverage was unaffordable, did not provide minimum value, or the full-time employee was not offered coverage).”

A helpful tip

Annual ALE Calculation – “FTE5”

The regulations permit the use of two measurement methods for identifying full-time employees. The most common approach can be done using 30 hours per week or 130 hours per month as the denominator and is described in more detail below. Another option is the “look-back method.”

A good place to start is with the “130 hours per month” plan. After all, why do something 52 times a year when you only have to do it 12 times? Basically, you determine the number of full-time employees you have by listing all workers who hold a full-time position or work more than 130 hours per month (or 30 hours per week) for each month of the year. Let’s call that number FTE1.

Next, take all hours each month worked by workers who are not in the FTE1 list and divide that number of hours by 130 hours per month (or 30 hours per week). Let’s call this number FTE2.

Add FTE1 and FTE2 together to get FTE3 for each month in a given year. Add the 12 months together and divide by 12. If this “FTE3” is less than 50 (remember the IRS says to “round down” – so if your FTE3 comes out to 49.88, that would be 49) stop here – you are a “small employer”.. If FTE3 is 50 or greater, you might be an ALE – but keep going….

If your annual ALE calculation is greater than 50, take a look at your list of workers and identify which are a) seasonal workers and, b) federal or state work-study program participants. Add a + b and this is your “FTE4”.

Take your annual ALE calculation – FTE3 – and subtract FTE4 from it. This gives you “FTE5”. And again, if “FTE5” is less than 50 you are a “small employer”. If FTE5 is 50 or greater, you are an ALE for the following year.

Now, if FTE5 is close to 50, you might:

• Re-calculate FTE1 and FTE2 based on 30 hours per week (rather than 130 hours per month) to see if the FTE3 number might be lowered.
• Explore the potential advantages of the more complicated look-back method.

This revised FTE3 is your “final answer” and determines whether or not you are an ALE.

Bottom Line

There are numerous misconceptions when it comes to Affordable Care Act provisions and how they might affect Christian colleges which could cause future anguish and gnashing of teeth. At the very least, a best practice is to use the “Measurement Method” above to calculate monthly – and ultimately by year – your number of FTEs. Check with you tax advisors for clarification.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.