If your business is growing and approaching the 50-employee mark, understanding Applicable Large Employer (ALE) status is essential. Under the Affordable Care Act (ACA), being classified as an ALE comes with specific responsibilities related to health insurance coverage, IRS reporting, and timely ACA reporting services.
Whether you're in HR, operations, or a business owner yourself, this guide will help you clearly understand what ALE status means, how to calculate it, and what steps to take to stay compliant.
Who Qualifies as an Applicable Large Employer?
An Applicable Large Employer is any company that had an average of 50 or more full-time employees or full-time equivalent employees (FTEs) during the previous calendar year.
A full-time employee is defined as someone who works 30 or more hours per week or 130 hours per month. A full-time equivalent (FTE) is a combination of part-time workers whose total hours add up to a full-time schedule. For example, two employees working 15 hours per week would count as one FTE.
To determine your ALE status, add the total number of full-time employees and full-time equivalents for each month of the previous year, then divide by 12. If the average equals 50 or more, your company is considered an ALE for the current year.
Why ALE Status Matters
ALE status triggers compliance requirements under two key ACA provisions:
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First is the Employer Shared Responsibility Provision. ALEs must offer affordable, minimum essential health coverage to at least 95% of their full-time employees and their dependents or face potential penalties.
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Second is the ACA Reporting Obligation. ALEs must file IRS Forms 1094-C and 1095-C to report coverage details and employee eligibility.
These rules are enforced annually. Failing to meet your obligations could result in penalties of over $300 per employee, per form, and significantly more if noncompliance is deemed intentional.
What Are Forms 1094-C and 1095-C?
Form 1095-C is issued to each full-time employee. It includes details about whether coverage was offered, the affordability of the plan, and the employee’s enrollment status.
Form 1094-C is a summary form submitted to the IRS that transmits the batch of 1095-Cs and confirms employer-level compliance.
All ALEs must furnish 1095-C forms to employees by early March and submit 1094-C and 1095-C to the IRS by February 28 (paper) or March 31 (electronic).
Special Considerations: Seasonal & Variable-Hour Employees
Some companies experience fluctuating staff levels due to seasonal hiring or part-time positions. The ACA allows for some flexibility here.
Seasonal workers who work 120 days or fewer in a calendar year generally do not count toward the ALE threshold. However, variable-hour employees must still be tracked monthly to calculate accurate FTE numbers.
Failing to account for fluctuating hours can unintentionally push a business over the ALE threshold, so it’s essential to monitor hours consistently.
What If You’re Close to the 50-Employee Threshold?
Even if you haven’t officially hit 50 full-time employees or FTEs, it’s smart to prepare ahead of time. If you’re hovering between 45 and 49 employees, begin tracking hours and classifications monthly, plan ahead for health coverage options that meet ACA affordability and minimum value requirements, and evaluate your reporting systems to ensure they can handle the necessary data.
Getting ahead of your ALE status helps avoid a rushed scramble and potential penalties later.
The Employer Shared Responsibility Provision
ALEs must offer health insurance coverage that meets three requirements:
Minimum Essential Coverage (MEC) provides basic medical coverage. Affordable Coverage means the employee’s share of the premium for self-only coverage must not exceed a certain percentage of their income. Minimum Value means the plan must cover at least 60% of expected medical expenses.
If you fail to meet these standards, you may face penalties. Penalty A applies if no coverage is offered and at least one employee receives a Premium Tax Credit (PTC). Penalty B applies if coverage is offered but is either unaffordable or lacks minimum value.
These penalties are assessed monthly and can grow rapidly.
Example ALE Calculations
Let’s say Company A has 40 full-time employees and 15 part-time employees who work 60 hours per month. Those part-time employees equal 7.5 FTEs. Adding them together gives you 47.5, which means Company A is not an ALE.
On the other hand, Company B also has 40 full-time employees but 20 part-time employees at 60 hours per month. That equals 10 FTEs. Added together, that’s 50 — and qualifies Company B as an ALE.
These calculations should be performed annually based on the previous year’s staffing.
New Employers and ALE Status
If your company is newly formed and had no workforce the previous year, you can still be considered an ALE if you reasonably expect to employ at least 50 full-time or FTEs and actually do employ at least 50 during the current year.
Start tracking employee hours early to avoid being caught off guard.
Group Employers and Aggregation Rules
If your business is part of a larger group with shared ownership or control, the IRS requires aggregation of all employees across those entities. These are called ALE Members. Each entity is considered separately for penalty purposes, but the group is treated as a single ALE for reporting and determination purposes.
This ensures that large corporate groups cannot bypass ALE rules by splitting staff across multiple smaller companies.
How 1095EZ Online Simplifies ALE Compliance
Navigating ALE rules and ACA reporting can be complex. That’s where 1095EZ Online comes in. Their ACA compliance platform tracks employee hours and calculates ALE status, generates and files Forms 1094-C and 1095-C, offers real-time error-checking to avoid costly mistakes, and delivers forms to employees and the IRS automatically.
Whether you’re approaching 50 employees or already past it, 1095EZ Online makes compliance straightforward and stress-free.
Don’t Let ALE Compliance Catch You Off Guard
Becoming an Applicable Large Employer is a major business milestone, but it also brings responsibility. From offering ACA-compliant health coverage to filing IRS forms accurately and on time, the stakes are high.
Start tracking employee hours, educate yourself on ACA requirements, and use trusted tools like 1095EZ Online to stay ahead of compliance. With proactive planning, you can focus on growth while staying protected from IRS penalties.