Applicable Large Employer (ALE)
Summary Definition: A term used in the Affordable Care Act (ACA) to identify employers that employ any combination of 50 full-time and full-time equivalent (FTE) employees.
What is an Applicable Large Employer (ALE)?
Applicable Large Employers (ALEs) are those who employ a mix of at least 50 full-time employees, full-time equivalent (FTE) employees, or a mix of the two. This status is used to enforce parts of the Affordable Care Act (ACA).
The Internal Revenue Service (IRS) determines an organization’s status each year, and that determination is based on the average size of the employer’s workforce from the prior year.
Importance of ALE Status in the ACA
The ACA contains provisions that apply uniquely to ALEs, so having ALE status can impact the level of compliance an organization must achieve. These provisions cover an organization’s shared responsibility for offering coverage that’s affordable and the information it must report to the IRS every year regarding that coverage.
Learn More: ACA Compliance Guide for Employers
Key Takeaways
- ALE is a status applied to organizations of a certain size for administering the ACA.
- To be an ALE, an organization must employ no less than 50 full-time or full-time equivalent (FTE) employees.
- If an organization is an ALE, the ACA requires it to share the responsibility of offering affordable care to workers and report on those offerings to the IRS.
Full-Time and Full-Time Equivalent (FTE) Employees
FTEs are a unit of measurement used to compare the workload of different employees, such as full-time employees and part-time employees. Specifically, one FTE is a combination of employees who aren’t full-time, but whose combined hours are the same as a full-time employee (at least 30 each week or 130 each month).
For example, a part-time employee who works 15 hours per week would be considered half an FTE. If combined with another part-time employee who works the same hours, the cumulative hours between them would be considered one FTE.
FTE calculations can vary based on employment policies, but typically the same arithmetic is used. Simply divide the total number of actual hours worked by the number of hours a full-time employee would work.
This unit of measurement is used in several different situations, such as budgeting for labor costs or as part of project management when estimating a project’s workload. However, one of the most public uses is the ACA and how it helps classify employers as ALEs.
How to Calculate ALE Status
To determine if an employer is an ALE, the IRS will examine an employer’s total workforce from the prior calendar year, also known as a “look-back” method. If that employer had the minimum threshold of 50 full-time employees or FTEs, they’re classified as an ALE.
The one exception to this process is if an employer has exceeded the 50-employee threshold, but used seasonal employees for 120 days or fewer.
Example A
In every month of 2022, Company A had 40 full-time employees who each worked 120 hours per month and 20 part-time employees who each worked 60 hours per month. This means the part-time staff as a whole worked 1,200 hours each month (20 x 60 = 1,200).
Dividing that amount by the number of hours a full-time employee worked in a single month results in having 10 FTEs (1,200 / 120 = 10) for each month of 2022.
|
Employee Type |
# of Employees |
Hours/Mo. Per Employee |
Total Hours |
|
Full-Time Employees |
40 | 120 | 4,800 |
|
Part-Time Employees |
20 | 60 | 1,200 |
|
Full-Time Equivalents |
10 (1,200 / 120) | ||
So, if Company A had 40 full-time employees and 10 FTEs each month of 2022, then by the end of the year the company would have had 480 full-time employees (40 x 12 = 480) and 120 FTEs (10 x 12 = 120) for a total of 600 employees that calendar year (480 + 120 = 600). Dividing that by 12 months equals 50 full-time employees.
ALE Status Calculation: Example A
[ (# FT Employees x 12) + (FTEs x 12) ] / 12 = Annual FT Employees
Example: [ (40 x 12) + (10 x 12) = 600 ] / 12 = 50
So, while Company A’s workforce was 60 individuals (40 full-time and 20 part-time) it only had the equivalent of 50 full-time employees each month in 2022. But this still qualifies Company A still qualifies as an ALE for the 2023 calendar year.
Example B
In every month of 2022, Company B had 40 full-time employees who each worked 120 hours per month and 15 part-time employees who each worked 60 hours per month. This means the part-time staff as a whole worked 900 hours each month (15 x 60 = 900).
Dividing that amount by the number of hours a full-time employee worked in a single month results in Company B having 7.5 FTEs (900 / 120 = 7.5) for each month of 2022.
|
Employee Type |
# of Employees |
Hours/Mo. Per Employee |
Total Hours |
|
Full-Time Employees |
40 | 120 | 4,800 |
|
Part-Time Employees |
15 | 60 | 900 |
|
Full-Time Equivalents |
7.5 (900 / 120) | ||
So, if Company B had 40 full-time employees and 7.5 FTEs each month of 2022, then by the end of the year the company would have had 480 full-time employees (40 x 12 = 480) and 90 FTEs (7.5 x 12 = 90) for a total of 570 employees that calendar year (480 + 90 = 570). Dividing that by 12 months equals 47.5 full-time employees.
ALE Status Calculation: Example B
[ (# FT Employees x 12) + (FTEs x 12) ] / 12 = Annual FT Employees
Example: [ (40 x 12) + (7.5 x 12) = 570 ] / 12 = 47.5
So, while Company B’s workforce was 55 individuals (40 full-time and 15 part-time) it only had the equivalent of 47.5 full-time employees each month in 2022. Thus, Company B isn’t an ALE for the 2023 calendar year.
ALE Requirements
Organizations with an ALE status must meet certain requirements of the ACA:
- They must offer health insurance that provides affordable coverage and a minimum value.
- They must pay a penalty if they don’t offer health insurance that meets those ACA standards. The size of the penalty depends on the number of full-time employees and how many of them are eligible for coverage.
- They must report their offerings to the IRS and provide information about them to their eligible full-time employees.
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