What is an Applicable Large Employer (ALE)?

If you're a small business owner, startup, or growing company trying to determine whether you’re required to provide health benefits under the Affordable Care Act (ACA), the first step is figuring out if your organization is considered an Applicable Large Employer (ALE).

Determining ALE status can feel confusing, especially if your workforce includes a mix of full-time, part-time, and seasonal employees. So, how do you know if your company qualifies?

In this guide, we'll walk you through what defines an Applicable Large Employer, how to calculate your ALE status, and what ACA requirements you'll need to meet if you qualify.

What is an Applicable Large Employer (ALE) and Why Does It Matter for ACA Compliance?

Under the ACA, not every business is required to offer employee health coverage. To focus compliance requirements on companies large enough to manage them, the ACA sets a clear threshold: the Applicable Large Employer (ALE) standard.

An ALE is a company that averaged 50 or more full-time employees or full-time equivalents (FTEs) during the previous calendar year.

Being classified as an ALE matters because it triggers specific ACA compliance obligations. If you meet the ALE criteria, you are legally required to provide health coverage that meets ACA standards and to properly document your compliance. Failure to meet these requirements could expose your business to expensive IRS audits and significant penalties.

How to Determine If Your Business is an ALE

Determining your ALE status isn’t just about counting how many employees are on your payroll. The ACA sets specific rules for how different types of workers—full-time, part-time, seasonal, and others—must be counted toward your total. Here’s how the calculation works for each group:

Full-Time Employees

According to the ACA, a full-time employee is someone who works 30 hours or more per week, or 130 hours in a month. Each person who meets that standard counts as one full-time employee for that month, regardless of the duration of their employment during that period. Even if someone is only employed for part of the month, if they reach 130 hours, they must be included in that month’s ALE calculation.

If you have 50 or more full-time employees, you are automatically considered an ALE. If you have fewer than 50 full-time employees, your full-time equivalent (FTE) employees may still push you over the 50-mark (more on this below).

Part-Time Employees (Calculated as Full-Time Equivalents)

Part-time employees—those who work fewer than 30 hours per week—are still factored into your ALE determination through a calculation called full-time equivalents (FTEs).

What is a full-time equivalent (FTE)?

The IRS defines a full-time equivalent employee as a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.

How to calculate FTEs:

1. Add up all the hours worked by part-time employees during the month (capping each individual employee at 120 hours).
2. Divide the total part-time hours by 120.

Example:

If your part-time staff worked a combined 1,200 hours in a month, that equals 10 FTEs

• 1,200 ÷ 120 = 10 FTEs

Important: Full-time employees and FTEs are added together each month to determine your ALE status.

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