Are You an Applicable Large Employer (ALE)?

Many employers believe the ACA only applies once they have 50 full-time employees.

That's not true.

The ACA counts both full-time employees and full-time equivalents (FTEs) when determining whether an employer is an Applicable Large Employer (ALE).

Once you become an ALE, you become subject to the Employer Shared Responsibility provisions of the Affordable Care Act.

How Is ALE Status Determined?

Generally, an employer becomes an ALE if it averages 50 or more full-time employees and full-time equivalents during the previous calendar year.

A full-time employee generally works:

• 30 hours per week, or
• 130 hours per month

Part-time employees also count through the Full-Time Equivalent calculation.

Example

A company has:

• 42 full-time employees
• 18 part-time employees averaging 80 hours per month

FTE Calculation:

18 × 80 = 1,440 monthly hours

1,440 ÷ 120 = 12 Full-Time Equivalents

42 + 12 = 54

Although the employer only has 42 full-time employees, it is considered an Applicable Large Employer because its average workforce exceeds 50.

Common Employer Mistakes

Only Counting Full-Time Employees

Many employers forget that part-time hours count toward ALE determination.

Ignoring Controlled Group Rules

Companies under common ownership may have to combine employees for ACA purposes.

Waiting Too Long

Many employers don't realize they became an ALE until after the plan year has already begun.

By then, they may already be exposed to IRS penalties.

Why ALE Status Matters

Once an employer becomes an ALE, it generally must:

• Offer Minimum Essential Coverage (MEC) to at least 95% of full-time employees and their dependents.
• Meet annual IRS reporting requirements.
• Avoid Penalty A and Penalty B.

Monitoring your workforce before reaching 50 employees gives you time to prepare instead of reacting.

The Bottom Line

Knowing when your company becomes an ALE is the first step toward ACA compliance. By monitoring employee counts throughout the year, employers can implement the right health plan strategy before IRS penalties become an issue.