An applicable large employer (ALE) is an employer that averaged at least 50 full-time employees, counting full-time-equivalent employees, during the prior calendar year. ALE status is what switches on the Affordable Care Act’s employer mandate: offer affordable, minimum-value coverage to full-time employees or risk a penalty, and file Forms 1094-C and 1095-C every year.
Key takeaways
- It is 50 full-time employees plus full-time equivalents, not 50 people. Part-time hours are converted into equivalents, so a business with 40 full-time staff and a busy part-time roster can cross the line.
- Status is set by last year’s average. You count every month of the prior calendar year, add them up and divide by 12. Crossing 50 this year usually matters next year.
- Related companies are counted together. Businesses under common ownership are combined to test ALE status, even if each one is small on its own.
- The penalties are real money. For 2026 the two employer shared responsibility payments are $3,340 and $5,010 per employee per year; for 2027 they rise to $3,780 and $5,670.
The definition in one sentence
Under Internal Revenue Code Section 4980H, an employer is an ALE for a calendar year if it employed an average of at least 50 full-time employees, including full-time-equivalent employees, on business days during the preceding calendar year. The test is run once a year and it looks backward: your 2026 workforce decides whether you are an ALE for 2027.
How to count your employees
Step 1: Count full-time employees each month
For this test, a full-time employee is anyone who averaged at least 30 hours of service per week in a month. The IRS lets you treat 130 hours of service in a calendar month as the monthly equivalent. Hours of service include paid time off, such as vacation, holidays, sick leave and paid leave, not only hours worked.
Step 2: Convert part-time hours into full-time equivalents
Add up the hours of service for every employee who was not full-time that month, counting no more than 120 hours for any one person. Divide the total by 120. The result is your number of full-time-equivalent employees (FTEs) for that month. Fractions are kept at this stage.
Step 3: Average the year
Add full-time employees and FTEs for each of the 12 months, total the 12 monthly figures and divide by 12. If the result is 50 or more (fractions are dropped at the end), you are an ALE for the current year. Our applicable large employer calculator does the arithmetic for you.
A worked example
A Michigan manufacturer has 42 full-time employees every month and a part-time crew whose hours total 1,200 a month, with nobody over 120 hours. The part-time hours equal 10 FTEs (1,200 divided by 120). Forty-two plus 10 is 52 in every month, so the annual average is 52 and the company is an ALE for the following year, even though it has fewer than 50 full-time employees on the payroll.
| Month count | Full-time employees | FTEs from part-time hours | Total |
|---|---|---|---|
| Each month | 42 | 1,200 hours / 120 = 10 | 52 |
| 12-month average | 52: ALE next year |
The exceptions and special cases
Seasonal workers
If your workforce is 50 or more only because of seasonal workers, and only for 120 days or fewer during the year, you are not an ALE. The 120 days do not have to be consecutive. This exception matters for landscaping, hospitality, retail and agricultural employers with a summer or holiday peak.
Companies under common ownership
Businesses that are part of the same controlled group or affiliated service group under Internal Revenue Code Section 414 are combined to decide ALE status. If one owner has three companies with 20, 20 and 15 full-time employees, the group has 55, and every company in it is an ALE member, even the one with 15. Each member is then responsible for its own offers of coverage and its own reporting.
New businesses
An employer that did not exist for all of the prior year is an ALE in its first year if it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees, including FTEs, during that year.
What ALE status requires
Being an ALE does not by itself cost anything. It creates two obligations.
- Offer coverage. Offer health coverage to at least 95% of full-time employees and their dependent children up to age 26. The coverage must provide minimum value and be affordable: for plan years beginning in 2026, the employee’s cost for the lowest-priced self-only option can be no more than 9.96% of household income, measured through one of the IRS safe harbors, rising to 10.22% in 2027. Our ACA affordability calculator checks your contribution against each safe harbor.
- Report it. File Form 1094-C with the IRS and furnish a Form 1095-C for each full-time employee. See What Is Form 1094-C? and What Is Form 1095-C? for the mechanics.
The two penalties
Section 4980H has two separate employer shared responsibility payments. Either one is triggered only when at least one full-time employee buys marketplace coverage and receives a premium tax credit.
| Payment | When it applies | 2026 annual amount | 2027 annual amount |
|---|---|---|---|
| 4980H(a), the “A” penalty | You do not offer coverage to at least 95% of full-time employees | $3,340 per full-time employee, minus the first 30 | $3,780 per full-time employee, minus the first 30 |
| 4980H(b), the “B” penalty | You offer coverage, but it is unaffordable or does not provide minimum value for an employee | $5,010 per employee who receives a premium tax credit | $5,670 per employee who receives a premium tax credit |
The B penalty can never exceed what the A penalty would have been. The amounts are indexed every year; the 2027 figures come from IRS Revenue Procedure 2026-22. More on what drives these assessments is on our benefits compliance penalties page.
If you are getting close to 50
The year you approach 50 is the year to prepare, because the count you are building now decides next year’s obligations. Track monthly hours for part-time and variable-hour employees, check whether any related companies need to be counted with you, and price a compliant offer before you need it. Our guide to crossing fifty employees walks through what changes at the threshold, from the employer mandate to COBRA and FMLA, which count employees differently.
More plain-English benefits explainers
- Health Insurance for Employees: how Michigan employers set up a group plan
- What Is Form 1094-C?: the employer transmittal and the 95% offer test
- What Is Form 1095-C?: the employee statement, its codes and deadlines
- What Is Commercial Health Insurance?: private coverage versus government programs
- What Does EE Mean?: EE, ES, EC and family coverage tiers
- How Much Does COBRA Insurance Cost?: averages, deadlines and cheaper options
Frequently asked questions
Is an applicable large employer 50 employees or 50 full-time employees?
It is 50 full-time employees including full-time equivalents. Part-time hours are added up, capped at 120 hours per person per month, and divided by 120 to produce FTEs, which are added to the full-time count.
Do part-time employees count toward ALE status?
Yes, through the full-time-equivalent calculation. They count toward whether you are an ALE, but you do not have to offer them coverage to avoid the A penalty; the offer requirement applies to full-time employees.
When does an employer become an ALE?
ALE status for a calendar year is based on the average workforce in the prior calendar year. If you averaged 50 or more full-time employees and FTEs in 2026, you are an ALE for 2027.
What is the ALE penalty for 2026?
For 2026 the 4980H(a) payment is $3,340 per full-time employee, minus the first 30, and the 4980H(b) payment is $5,010 per employee who receives a premium tax credit. For 2027 the amounts are $3,780 and $5,670.
Do seasonal workers count toward the 50?
They are counted, but if you exceed 50 only because of seasonal workers and only for 120 days or fewer in the year, you are not an ALE.
Not sure where you land?
CFH Insurance Consultants is an independent employee benefits firm. We are licensed insurance brokers, and for proper coverage of an account we work in teams of five. We will run your prior-year hours through the ALE test, check whether related companies change the answer, and price an offer that passes the affordability test before a penalty notice arrives. Start here, call 248.370.8853, or book a 30-minute call.
This article is general information, not tax or legal advice. ALE rules and penalty amounts are set and indexed by the IRS; confirm your status and current figures with a tax advisor.
