Applicable large employer (ALE) under the ACA | HR Guide
The Affordable Care Act (ACA), introduced on March 23, 2010, has greatly affected how employers provide healthcare coverage. It also introduced new terminology that impacts how organizations operate and the role and responsibility they have for benefit administration.
Published: April 30, 2025 | by Brightmine
Often referred to as “Obama Care,” the ACA has proven beneficial for many employees and their families.
One of the important terms that this Act introduced is the “applicable large employer” or ALE. Here we look at:
- What an ALE and how to determine status
- The responsibilities of ALEs
- How to determine ALE status
- Penalties employers face for non-compliance
- How to get guidance and support to ensure compliance.
What is an Applicable Large Employer (ALE)?
An ALE refers to those employers that are responsible for following the provisions of the ACA. Specifically, ALEs are employers that have an average of at least 50 full-time employees. This includes full-time equivalent employees during the previous calendar year.
While that may seem like a straightforward determination, in practice it has proven to be anything but. Some tasks that may seem simple and straightforward, like calculating the number of employees or full-time equivalents (FTEs), can be more complex than they seem. It’s critical for employers to get this calculation right because ALEs are required to be compliant with the ACA’s employer shared responsibility provisions, or “HR mandate”.
The employer mandate requires ALEs to offer employees “minimum essential coverage” that is “affordable” and provides “minimum value” to full-time employees and their dependents.
ALEs that fail to comply with these mandates are subject to shared responsibility payments to the IRS.
Meeting the requirements of the employer mandate can be particularly onerous for large companies with multiple locations and complex ownership structures. This is because ALE determination is based on a “controlled group basis,” combining all related entities. However, even small employers may struggle with the complexities and ongoing changes and challenges of meeting their responsibilities as ALEs.
In addition to providing minimum, essential and affordable coverage that provides value to employees, ALEs face reporting requirements including filing Forms 1094-C and 1095-C with the IRS. They also need to provide full-time employees with statements about the health coverage they have access to.
What responsibilities do ALEs have under the ACA?
If your organization qualifies as an ALE you have some specific responsibilities and compliance obligations. These include:
- Offering minimum essential coverage. You should offer coverage to at least 95% of your full-time employees and their dependents. This coverage must:
- Be affordable—employee contributions for individual coverage cannot exceed a specific percentage of their household income—9.02% for plan years beginning in 2025.
- Offer employees minimum value in their coverage – the plan must pay at least 50% of their total cost of medical services and must include substantial coverage of physician and inpatient hospital services.
- Complying with reporting requirements. Employers must report the coverage they provide to full-time employees through Forms 1094-C and 1095-C, meeting specific filing deadlines as required by the IRS.
Employers face potential shared responsibility payments if they do not comply with the employer mandate which include:
- “A” Penalty—triggered when ALEs do not offer essential coverage to at least 95% of full-time employees and their dependents and when at least one full-time employee receives a premium tax credit.
- “B” Penalty—applied when an ALE offers minimum essential coverage to at least 95% of full-time employees, but coverage is either not affordable or doesn’t offer minimum value, and one of more full-time employees receive a premium tax credit.
Penalties are adjusted annually for inflation. To avoid penalties and costs it’s critical that ALEs are proactive in compliance management.
How to calculate ALE status
Calculating ALE status requires accurate recordkeeping and counting of employees which is where compliance can become, perhaps surprisingly, challenging. To calculate ALE status, organizations need to:
- Count full-time employees who worked at least 30 hours per week, or 130 hours per month during the previous calendar year
- Calculate full-time equivalent (FTE) employees for each calendar month by counting total hours of service (for non-full-time employees up to 120 hours/employee, and dividing the total by 120)
- Add the number of full-time employees and FTEs for each month
- Calculate the average across all 12 months of the previous year
- Apply the threshold test—if your result is 50 or more your organization will be considered an ALE for the current calendar year.
This calculation must be done each calendar year based on data for the previous calendar year to determine ALE status. Note that your ALE status may change from year to year depending on the size of your workforce.
Calculating full time equivalent (FTE) employees
Calculating ALE status requires calculating the number of FTEs and full-time employees on a month by month basis for the previous year. Your FTEs will equal the number of full-time employees (those working at least 30 hours a week) in addition to the number of hours worked by employees who are not full-time, divided by 120.
Consequences for not complying with ACA requirements for ALEs
Employers must take care to ensure that they understand and are meeting the requirements to avoid costly penalties—as well as reputational impacts.
There are two types of financial penalties that the IRS can apply:
- Section 4980H(a) Penalty. This is applied if ALEs do not offer minimum essential coverage to at least 95% of their full-time employees. Failure to do so can result in thousands of dollars multiplied ty the total number of full-time employees (minus the first 30). Clearly this can quickly amount to a significant penalty, especially for large employers.
- Section 4980H(b) Penalty. Even when ALEs meet the requirement for offering minimum essential coverage to at least 95% of their full-time employees they may still face penalties if they fail to offer affordable coverage, or the coverage doesn’t provide minimum value for employees. This penalty also applies on a per-employee basis for every full-time employee that receives a premium tax credit.
ALEs that do not comply with requirements for filing information returns (Forms 1094-C and 1095-C), or that provide incorrect information, are subject to penalties under Sections 6722/6722 of the Internal Revenue Code. Note that penalties apply per return so penalties applied can ramp up quickly.
The IRS may also assess penalties for late filing, not providing required statements to employees, or filing incorrect information.
If the IRS determines that an organization has not complied with requirements, they will typically issue Letter 226-J proposing an ESRP assessment. ALEs may then:
- agree with the assessment
- provide evidence to dispute the assessment
- request a meeting with the IRS
In addition, failure to comply with the requirements of the ACA can also result in added IRS scrutiny. This may lead to additional tax issues and assessments.
Non-compliance doesn’t just carry the risk of financial penalties. Organizations may also suffer reputational or brand damage and erode employee trust and satisfaction.
Access in-depth ACA compliance guidance vetted by HR experts
Complying with ACA requirements as an ALE can be complex. Brightmine can help. The Brightmine HR & Compliance Center offers access to a wide range of resources and insights to help ALEs address ACA compliance challenges.
Brightmine content is reviewed and vetted by experienced HR professionals and legal experts specializing in ACA compliance. You can be confident that the information you receive is accurate and current, practical and focused on implementation, risk- and compliance-oriented.
Brightmine will keep you informed of annual adjustments to affordability thresholds, changes to reporting requirements, new IRS guidance and enforcement priorities, and court decisions that impact ACA implementation.
Don’t leave compliance to chance. Avoid costly penalties and reputational damage by turning to Brightmine HR Compliance Center for expert-vetted resources to help you navigate ACA requirements with confidence. We’ll keep you up-to-date and compliant so you can focus your efforts on providing the best benefit experience for your workforce.
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Brightmine
With more than 10,000 customers, Brightmine is a leading global provider of people data, analytics and insight – empowering HR leaders to deliver brighter business outcomes.
For more than two decades, Brightmine, formerly XpertHR, has continued to help HR leaders confidently navigate the evolving world of work through our unique combination of critical workforce data, AI-enabled technology, and trusted HR expertise.
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