Applicable Large Employers
Applicable Large Employers (ALEs) are those who employ a mix of at least 50 full-time employees, full-time equivalent (FTE) employees, or a mix of the two. This status is used to enforce parts of the Affordable Care Act (ACA). The ACA contains provisions that apply uniquely to ALEs, so having ALE status can impact the level of compliance an organization must achieve.
Required Notice: Offer of Coverage & Waivers
ALEs who are subject to the employer mandate are required to make an Offer of Coverage at least once per year.
If an employee is not given an annual opportunity to enroll in coverage, then the employer will be considered to have failed to make an offer of coverage to the employee under the employer mandate and be at risk for a penalty.
Best practice: capture signed enrollments AND waivers for each eligible FT employee OR time-stamped electronic elections/waivers.
Determining ALE Status
Employers that had at least 50 full-time employees, including FTE employees, on average last year, are most likely an ALE for the current year.
Full-time employees are those who work at least 30 hours per week, or 130 hours of service per month. However, for purposes of determining whether an employer is an ALE, the employer must use 120 hours per month as the basis to identify full-time employees. Thus, anyone working 120 hours or more per month must be counted as a full-time employee.
A leased employee, sole proprietor, partner, or 2% S-corporation shareholder is not considered an employee for purposes of the ALE determination.
IRS Calculation : Determine ALE Status
The IRS gives the following method for calculating the number of full-time employees plus FTEs during the prior calendar year divided by 12, to get the yearly average:
Step 1: Add the number of full-time employees (including seasonal workers) for each calendar month during the previous calendar year.
Step 2: Add the number of FTEs (including seasonal workers) for each calendar month in the preceding calendar year. Calculate the total hours of service in a month for employees who are not full-time employees for that month. (don’t include more than 120 hours of service for any employee.) Then divide the total number of part-time hours by 120.
Step 3: Add the number of full-time employees and FTEs from Steps 1 and 2 for each month of the preceding calendar year.
Step 4: Add up the 12 monthly numbers from Step 3 and divide the sum by 12. This is the average number of full-time employees for the preceding calendar year.
Step 5: If the number in Step 4 is less than 50, then the employer is not an ALE for the current calendar year. If the number in Step 4 is 50 or more, the employer is an ALE and subject to the employer mandate for the current calendar year. In some cases, “seasonal workers” can be disregarded.
Example Calculation
During each calendar month of 2024, a company has 20 full-time employees, each of whom averages 35 hours of service per week; 40 employees, each of whom averaged 90 hours of service per month; and no seasonal workers.
Each of the 20 employees who average 35 hours of service per week count as one full-time employee for each calendar month. To determine the number of FTE employees for each calendar month, the total hours of service of the employees who are not full-time employees (but not more than 120 hours of service per employee) are added up and divided by 120.
The result is that the employer has 30 FTE employees for each calendar month (40 × 90 = 3,600, and 3,600/120 = 30). Because this employer had 50 full-time employees (20 full-time employees plus 30 FTE employees) during each calendar month in 2024, and because the seasonal worker exception is not applicable, this organization is an ALE for the 2024 calendar year. This means they are subject to the employer mandate, and will have to file Forms 1095-C and 1094-C for the 2024 tax year in early 2025.
Variable Hour Employee Look-Back Measurement
If an ALE has non-full-time employees who could potentially have 130 hours of service in a month and/or seasonal full-time employees they do not want to extend benefits to, the IRS’s lookback method may be useful to utilize.
The employer may measure these employees in a look-back measurement period for up to 12 months. If the employee averages FT hours during the measurement period, they would be offered coverage prospectively for the same length of time known as the stability period.
Employers can have up to 90 days for an administrative period for ongoing measurement/stability periods. However, it is recommended to use a 2-month administrative period instead since there are typically more than 90 days over a 3-month period.
ALEs can treat employees rehired after 13 or more weeks as new hires starting over for ACA purposes, but those rehired within 13 weeks generally must be plugged back into the look-back status they had before.
Additional Resources
Section 6055 and 6056 reporting: Forms 1094-B or C and 1095-B or C