Applicable Large Employer (ALE)

An applicable large employer (ALE) is an employer that averaged at least 50 full-time employees, counting full-time equivalents, during the previous calendar year. ALE status decides whether the ACA employer rules apply to your organization, and the count covers the whole employer, which can include several related companies.

A common mistake is to count only the people on payroll. The test adds up hours, so part-time staff count as fractions, and related companies count together. Nonprofits and government entities can be ALEs too.

How Do You Count Full-Time Employees and Full-Time Equivalents?

A full-time employee averages at least 30 hours of service per week, or 130 hours in a calendar month. Each month, count those employees. Then add full-time equivalents, which you find by totaling the monthly hours of everyone who is not full-time and dividing by 120.

No single employee adds more than 120 hours to that total. The IRS example is 40 full-time employees plus 20 employees working 60 hours each. The 20 part-timers add 10 full-time equivalents, for a count of 50.

How Does Prior-Year Averaging Work?

Add each month's full-time count and full-time equivalent count for the prior calendar year, divide by 12, and round any fraction down. A result of 50 or more makes you an ALE for the current year, unless the seasonal rule applies. Monthly counts that total 612 over the year, for example, average 51.

Status is set year by year, so an employer can move in and out of ALE status. A new employer with no prior year is an ALE if it reasonably expects to average 50 full-time employees and actually does. Hours of service include paid time off such as vacation, illness, and jury duty.

How Do Controlled and Affiliated Service Groups Affect the Count?

The statute treats all persons that are a single employer under section 414(b), (c), (m), or (o) of the tax code as one employer. That reaches controlled groups of corporations, businesses under common control, and affiliated service groups. The regulations count all their employees together, and each member of the group is then an ALE member.

A company with only 20 employees can therefore be an ALE member if its group reaches 50, and the employer rules then apply to each ALE member for its own employees. The IRS gives the example of an individual who owns 80 percent or more of two businesses. Owners of several companies should map their ownership before concluding that any one entity is below the threshold.

How Does the Seasonal Worker Rule Work?

An employer is not an ALE if its count exceeds 50 for 120 days or fewer during the preceding calendar year, and the employees above 50 in that period were seasonal workers. The rules let four calendar months stand in for 120 days. Neither the months nor the days have to be consecutive.

Seasonal workers still count in the monthly averages, so the rule only helps an employer that would otherwise cross 50. The regulations define a seasonal worker by the Secretary of Labor's definition and give retail workers employed only during the holiday season as an example. Employers may use a reasonable, good-faith reading.

How Does HR Cloud Fit Into Applicable Large Employer Status?

HR Cloud's time tracking page says HR can export timesheets for each pay period, with one row per employee per day, and the payroll integrations page lists employee hours syncing with payroll. The People page describes one employee record with advanced reporting. These pages do not mention the ACA, ALE status, or full-time equivalent counts.

HR Cloud does not calculate ALE status. HR must run the monthly count, combine related companies, apply the seasonal rule, and confirm the result with a tax or benefits professional.

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Frequently Asked Questions

Q: How many employees make a company an applicable large employer?

A: An average of at least 50 full-time employees, including full-time equivalents, across the preceding calendar year. The monthly counts are added and divided by 12, and fractions are rounded down.

Q: Do part-time employees count toward ALE status?

A: Yes. Their monthly hours, up to 120 per employee, are added together and divided by 120 to give full-time equivalents. The 120-hour monthly cap applies to each employee, and the result is added to the full-time count.

Q: Do seasonal workers count?

A: Yes, they count in the averages. They are excluded only through the seasonal rule, when the count passes 50 for 120 days or fewer and the excess employees are seasonal. Seasonal workers who are not full-time are also included in the full-time equivalent calculation.

Q: Does ALE status use this year or last year?

A: Last year's counts decide this year's status. A new employer with no prior year uses a reasonable expectation of 50 full-time employees, plus the actual count.

Q: Can a nonprofit or a government employer be an ALE?

A: Yes. The IRS states that tax-exempt organizations and government entities can be ALEs.

Q: What changes once an employer is an ALE?

A: The ACA employer shared responsibility rules and annual IRS reporting then apply. The 1094-C vs 1095-C entry explains the reporting forms.