Applicable Large Employer FAQs: Everything Employers Are Asking

Whether you’re determining if your business qualifies as an Applicable Large Employer (ALE) or simply trying to stay up to date with evolving Affordable Care Act (ACA) requirements, this article addresses the most common questions employers are asking about the ACA’s ALE designation.

Determining Applicable Large Employer Status

1. What is an Applicable Large Employer (ALE)?

An Applicable Large Employer (ALE)  is a federal classification created under the Affordable Care Act (ACA). ALEs are businesses with an average of 50 or more full-time employees, including full-time equivalents (FTEs), subject to the ACA’s Employer Mandate.

2. How do I know if my business qualifies as an ALE?

To determine if your business qualifies as an ALE, you must add the total number of full-time employees and full-time equivalent (FTE) employees for the previous calendar year. If this average is 50 or more, your business qualifies as an ALE and must comply with ACA requirements.

3. Which employees count toward ALE status?

The ACA and IRS set specific guidelines to determine which employees are considered when assessing ALE status. Here are how the different employee classifications impact your ALE determination:

• Full-time employees: Those working an average of 30 hours or more per week or 130 hours or more per month are considered fully employed and count toward ALE status.
• Part-time employees: Those working fewer than 30 hours per week or less than 130 hours per month are counted as full-time equivalents (FTEs) toward ALE status.
• Seasonal employees: Typically count as full-time or part-time employees based on the number of hours that they work.
• 1099 contractors: Independent contractors are not considered employees and are not counted in ALE calculation.
• Non-U.S.-based employees: Generally excluded unless subject to U.S. income tax withholding.

4. How do I determine full-time equivalents (FTEs)?

Part-time employees are counted towards your ALE status as full-time equivalents (FTEs). FTEs are determined by combining monthly hours of part-time employees (capped at 120 per employee), then divided by 120.

Example:

Five part-time employees each work 100 hours in a month.

(5 employees × 100 hours) ÷ 120 = 4.17 FTEs.

Learn more in our article, What is a Full-Time Equivalent (FTE) Employee?

5. How do I calculate ALE status if my workforce fluctuates month to month?

The IRS looks at your average number of full-time and full-time equivalent employees over the entire calendar year. Here’s how it works:

• Count your monthly full-time employees and FTEs separately
• Combine the total
• Average the totals over the year

If the annual average reaches 50 or more, you’re an ALE.

Seasonal Exemption

If your employee count exceeds 50 for 120 days or fewer due only to seasonal workers, you might not be considered an ALE, provided:

• You exceed 50 employees for no more than 120 days (consecutive or not).
• Seasonal employees were the sole cause of the temporary increase.

This exemption is designed to protect businesses that hire additional help during seasonal peaks, such as holidays, harvest time, or summer.

6. If I own multiple businesses, are they counted together for ALE determination?

Yes. Under IRS Employer Aggregation Rules, related businesses with common ownership or control must combine employees from each business for ALE determination.

If together these businesses have 50 or more full-time (and FTE) employees, each separate business (called an ALE member) must follow ACA rules—even if individually they have fewer than 50 employees.

In short, the shared ALE status applies at the group level, but compliance responsibilities and penalties are handled at the individual company level.

Compliance Requirements for Applicable Large Employers

7. What are the ACA requirements for ALEs?

Two ACA provisions specifically apply to Applicable Large Employers (ALEs):

1. Employer Shared Responsibility Provisions
2. Employer Information Reporting Provisions

Under the Employer Shared Responsibility Provisions, ALEs must:

• Offer Minimum Essential Coverage (MEC) to at least 95% of full-time employees and their dependents (Section 4980H(a) of the Internal Revenue Code).
• Ensure coverage provides Minimum Value (MV) (Section 36B(c)(2)(C)(ii) of the Internal Revenue Code).
• Ensure coverage is affordable, meaning the employee’s contribution for the lowest-cost self-only plan doesn't exceed 9.02% of their household income (2025 rate).

Under the Employer Information Reporting Provisions, ALEs must:

• File annual ACA reporting (Forms 1094-C and 1095-C) with the IRS.
• Provide employees with Form 1095-C annually.

8. What’s considered “affordable” coverage?

Coverage is considered affordable if the employee's contribution for the lowest-cost self-only plan doesn't exceed 9.02% of their household income (2025 rate).

The affordability percentage is updated annually, so it's important to verify the current rate each year.

9. What is Minimum Essential Coverage and Minimum Value?

• Minimum Essential Coverage (MEC): Basic level of health coverage including preventive care, hospitalization, and emergency services.
• Minimum Value (MV): A plan that covers at least 60% of total allowed medical costs and includes substantial coverage for inpatient and physician services.

10. Are ALEs required to offer coverage to spouses?

No. Coverage for spouses is not required. However, ALEs are required to offer coverage to dependents, defined as biological and adopted children under age 26.

11. What happens if an employee declines offered health insurance?

You won’t face ACA penalties if an employee declines your health insurance, as long as you offered coverage that is:

• Affordable (under 9.02% of their household income in 2025),
• Minimum Value (covers at least 60% of expected healthcare costs), and
• Minimum Essential Coverage (MEC).

Just make sure you document your offer and the employee’s decision to decline—this protects you in case of an audit.