What is an Applicable Large Employer (ALE) under the IRS rules?

An Applicable Large Employer is defined by the IRS as an employer with 50 or more full-time employees, including full-time equivalents (FTEs), during the previous calendar year. This designation triggers ACA employer shared responsibility provisions and reporting requirements.

How are full-time employees and full-time equivalents (FTEs) calculated for ACA purposes?

A full-time employee is someone working on average 30 or more hours per week. FTEs are calculated by adding total hours worked by part-time employees (capped at 120 hours per month per employee) and dividing by 120. This combined total determines ALE status.

Why does ALE status matter for ACA compliance?

Being classified as an ALE means your company must offer affordable, minimum value health coverage to full-time employees and dependents, or risk penalties. ALEs must also file accurate ACA reports with the IRS, including Forms 1094-C and 1095-C.

How does tracking part-time and variable hour employees impact ALE status?

Accurate tracking of hours worked by part-time and variable hour employees is essential to correctly calculate FTEs and determine eligibility for health coverage offers. Without proper tracking, employers risk ACA penalties for failing to offer coverage when required.

How can ACA-Track help with managing ALE compliance?

ACA-Track automates hour tracking, employee eligibility monitoring, and ACA reporting. It integrates seamlessly with payroll and HR systems, generates required IRS forms, and assists in error correction and audit readiness, helping ALEs stay compliant with ease.

How the IRS Defines an Applicable Large Employer—and Why It Matters

Navigating the complexities of the Affordable Care Act (ACA) can be daunting for many employers. Central to understanding your responsibilities under the ACA is the concept of an Applicable Large Employer (ALE) — a designation that carries significant compliance obligations. In this detailed guide, we’ll break down what the IRS considers an ALE, why this classification matters, and how your organization can stay ahead with the right ACA compliance solution like ACA-Track.

What is an Applicable Large Employer (ALE)?

Under Section 4980H of the Internal Revenue Code, an Applicable Large Employer is generally defined as an employer that employed an average of 50 or more full-time employees, including full-time equivalent employees (FTEs), during the previous calendar year. This classification determines whether your business is subject to the employer shared responsibility provisions of the ACA.

How Full-Time and FTEs are Calculated

A full-time employee is anyone who works on average at least 30 hours per week or 130 hours per month.
To calculate full-time equivalent employees, add together the hours worked by part-time employees (capped at 120 hours per employee per month), then divide that number by 120. This helps employers account for part-time and variable-hour workers in the ALE calculation.

Example:
If your company has 40 full-time employees and 20 part-time employees each working 60 hours in a month, the FTE calculation would be:

Part-time hours: 20 employees × 60 hours = 1,200 hours
Divide by 120: 1,200 ÷ 120 = 10 FTEs
Total full-time equivalent employees = 40 full-time + 10 FTEs = 50 employees → Your company is an ALE.

Why Being an ALE Matters

If your company is classified as an ALE, you face specific obligations under the ACA:

Offer Affordable, Minimum Value Health Coverage: ALEs must offer health insurance coverage that is affordable and provides minimum value to all full-time employees and their dependents.
Avoid Shared Responsibility Penalties: If you fail to provide adequate coverage and at least one full-time employee receives a premium tax credit for Marketplace coverage, you could be liable for penalties.
Comprehensive Reporting to the IRS: ALEs must report detailed information annually via Forms 1094-C and 1095-C about health coverage offers and enrollment to employees and the IRS.

Failure to comply with these rules can lead to significant fines and penalties. Understanding if you are an ALE is the first step in ensuring your organization remains compliant.

The Importance of Tracking Part-Time and Variable Hour Employees

Part-time and variable hour employees can tip the scale in your ALE determination and impact your coverage obligations. Since eligibility for health coverage hinges on hours worked, tracking actual hours for these employees is essential.

Without accurate tracking, employers risk facing penalties if employees claim coverage via the Marketplace that should have been offered by the employer.
Proper documentation of hours worked allows employers to prove that some employees averaged less than 30 hours per week, potentially excluding them from full-time status.

How ACA-Track Simplifies ALE Compliance

Navigating ACA compliance requirements can be complex, particularly when managing hours worked, employee eligibility, and IRS reporting. This is where ACA-Track shines.

ACA-Track Features at a Glance

Complete Employee Hour Tracking: Collects actual hours worked from all employee types across multiple systems — time clocks, manual sheets, payroll systems, even mobile device entries.
Employee Eligibility Monitoring: Provides real-time alerts when employees reach eligibility thresholds and tracks events like waivers or leaves.
Comprehensive IRS Reporting: Generates Forms 1094-C and 1095-C with accuracy, and electronically files the XML files directly with the IRS.
Error Detection & Correction: Performs monthly line code audits and helps fix ACA reporting errors proactively.
Seamless Integration: Works with any payroll system, HRIS, or financial management system, centralizing all ACA compliance data.
Dedicated Support: Each client is paired with a Client Success Advisor to make ACA compliance straightforward.

Why Choose ACA-Track?

ACA-Track offers a data-driven, secure, and user-friendly platform designed to simplify the complexities of ACA compliance for businesses of all sizes. The customizable dashboard, snapshot summary feature, and flexible configurations empower users to efficiently manage compliance with minimal risk.

The Risks of Non-Compliance for ALEs

Non-compliance with ACA requirements can be costly:

Employer Shared Responsibility Penalties:
- $2,000 per full-time employee (minus the first 30 employees) if coverage isn’t offered.
- $3,000 per full-time employee receiving a premium tax credit for unaffordable or insufficient coverage.
Reporting Penalties:
Late or incorrect filings of Forms 1094-C and 1095-C can lead to penalties of up to $270 per form, which can double if not furnished to employees.
IRS Penalty Letters (Letter 226-J):
The IRS sends detailed penalty notices explaining violations. Employers must respond promptly (usually within 30 days) with documentation or risk escalated penalties.

Final Thoughts

Understanding the IRS definition of an Applicable Large Employer is critical for your business’s ACA compliance strategy. Whether you are just approaching the 50 full-time employee threshold or are well above it, accurate tracking and robust reporting capabilities are key to avoiding penalties and managing risk.

By partnering with a trusted ACA compliance solution like ACA-Track, your company can confidently navigate these regulations with expert support and cutting-edge technology tailored to your unique needs.

Explore ACA-Track today and ensure your company remains compliant, confident, and penalty-free under the Affordable Care Act.