Why ALE Status Matters
Only Applicable Large Employers (ALEs) are subject to the ACA’s Employer Shared Responsibility provisions (IRC §4980H), commonly called the ACA’s Employer Mandate.
An ALE may owe a penalty if it doesn’t offer affordable, minimum value coverage to its full-time employees, along with an offer of coverage to their dependent children up to age 26. Employers that aren’t ALEs aren’t subject to these penalties.
How ALE Status is Determined
- An employer is an ALE if it had an average of 50 or more full-time employees, including full-time equivalents (FTEs), during the prior calendar year.
- ALE status is based on the calendar year, not the plan year. Each year, the employer looks back at its employee counts for all 12 months of the prior calendar year.
- Once determined, ALE status applies for the entire calendar year, even if the workforce grows or shrinks during the year.
- Reaching 50 doesn’t make an employer an ALE right away. ALE status is based on the average for the entire prior calendar year. An employer that grows to 50 or more full-time employees and FTEs partway through the year doesn’t become an ALE that year. It becomes an ALE the following calendar year only if its average for the full year was 50 or more.
Who Counts Toward the 50
- Full-time employees are employees who average 30 or more hours per week, or 130 or more hours of service per month.
- Full-time equivalents (FTEs) aren’t actual employees. They’re a way of counting part-time employees’ hours by combining them into full-time equivalents. For example, two part-time employees working 60 hours each in a month count as one FTE for that month.
Other Things to Know
- FTEs only determine ALE status. The employer mandate doesn’t require coverage to be offered to part-time employees or “FTEs.”
- Related employers are counted together. Employers under common ownership or control are combined as a Controlled Group when determining ALE status. If the combined group is an ALE, each employer in the group is an ALE, but any penalties are assessed separately for each employer.
- Reporting: ALEs also have annual reporting obligations. They file Forms 1094-C and 1095-C with the IRS and provide Form 1095-C to full-time employees, or make it available.
Important: This information is provided for general educational purposes. It is not legal or tax advice. How these rules apply depends on each employer’s specific circumstances, so employers should review their situation with their own legal counsel, ERISA attorney, CPA or tax advisor.