How do I know if I’m an applicable large employer?

Add your monthly count of full-time employees (30+ hours/week) to your full-time equivalents (total part-time hours ÷ 120). Average those monthly totals across the prior calendar year. If the result is 50 or above (after truncating any decimal), you are an ALE.

Does the 50-employee threshold include part-time workers?

Part-time workers are not counted individually, but their combined hours are converted into full-time equivalents. Those FTEs are added to your full-time headcount for the threshold calculation.

What triggers ALE penalties?

Penalties are triggered only when at least one full-time employee receives a premium tax credit through the ACA Marketplace. If no employee receives a PTC, no penalty is assessed, even if your coverage has gaps.

Can an ICHRA satisfy the employer mandate for ALEs?

Yes. An ICHRA qualifies as minimum essential coverage when employees enroll in individual health insurance. If the ICHRA allowance makes the lowest-cost silver marketplace plan in the employee’s area affordable (under the 9.96% threshold for 2026), the ICHRA also meets the minimum value requirement automatically.

What is the seasonal worker exception?

If your workforce exceeded 50 full-time employees for 120 days or fewer during the prior year, and every employee above 50 during that window was a seasonal worker, you are not considered an ALE. The 120 days (or four calendar months) do not need to be consecutive.

What’s the difference between seasonal workers and seasonal employees?

“Seasonal worker” applies to the ALE threshold test (whether you are an ALE at all). “Seasonal employee” applies to measurement-period rules for determining when coverage must be offered to a specific person. Mixing up these terms is a common compliance mistake.

Do controlled group rules affect ALE status?

Yes. Businesses under common ownership are aggregated and treated as a single employer. You could have multiple entities, each under 50 employees, and still be an ALE once combined. See our controlled group rules article for details.

What are the 2026 ALE penalty amounts?

Penalty A (failure to offer coverage) is $3,340 per full-time employee, minus the first 30. Penalty B (unaffordable or inadequate coverage) is $5,010 per affected employee who receives a marketplace subsidy. Both represent significant increases from prior years.

All blog posts

Applicable Large Employer (ALE) Rules and ACA Guide

Understand Applicable Large Employer Rules for 2026: calculate FTEs, meet 9.96% affordability, avoid 4980H penalties, and see how CHOICE (ICHRA) can comply.

Written by

SimplyHRA.com

Applicable Large Employers (ALEs) face specific legal responsibilities under the Affordable Care Act (ACA). Understanding ALE status and employer mandate requirements is essential for businesses approaching or exceeding 50 full-time equivalent employees.

CHOICE (Custom Health Option and Individual Care Expense) Arrangement is the current name for what was previously referred to as an ICHRA (Individual Coverage Health Reimbursement Arrangement). This page uses both terms.

Determining ALE Status

An employer is classified as an ALE for a calendar year if it employed an average of at least 50 full-time employees (including full-time equivalent employees, or FTEs) during the preceding calendar year. A full-time employee is generally defined as one working an average of at least 30 hours per week or 130 hours per month.

The Employer Shared Responsibility Provisions (ESRP)

ALEs are subject to Section 4980H of the Internal Revenue Code, which includes two potential penalty assessments:

Section 4980H(a) Penalty: Assessed if the ALE fails to offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees and their dependents, and at least one full-time employee enrolls in Marketplace coverage and receives a Premium Tax Credit (PTC).
Section 4980H(b) Penalty: Assessed if the ALE offers coverage to at least 95% of full-time employees, but the coverage is either unaffordable or fails to provide Minimum Value (MV), and one or more full-time employees receive a PTC.

How ICHRA Satisfies the ALE Mandate

An Individual Coverage HRA satisfies both prongs of the employer mandate when designed correctly:

Minimum Essential Coverage: An ICHRA is an eligible employer-sponsored plan and counts as MEC, provided it is integrated with individual health insurance.
Minimum Value: An ICHRA is deemed to provide minimum value if the affordable allowance test is satisfied.
Affordability: The ICHRA allowance is affordable if the employee's required contribution for the lowest-cost Silver plan on the local exchange does not exceed the annual affordability percentage (9.96% in 2026, and 10.22% for plan years beginning in 2027) of the employee's income under an approved safe harbor.

Safe Harbors for ALEs Offering ICHRAs

IRS regulations provide three safe harbors for determining employee household income:

Form W-2 Safe Harbor: Based on the employee's Form W-2 Box 1 wages.
Rate of Pay Safe Harbor: Based on the employee's hourly wage or monthly salary.
Federal Poverty Line (FPL) Safe Harbor: Based on the federal poverty line for a single individual in the employee's state.

Reporting Requirements: Forms 1094-C and 1095-C

ALEs must report health insurance offers and coverage annually using IRS Forms 1094-C (transmittal) and 1095-C (employee statement). For ICHRA offers, employers use specific codes (such as Code 1L through 1U on Line 14) to document the affordability, location, and coverage type.

Book a demo with SimplyHRA to see how our platform automates ALE compliance, affordability testing, and 1094/1095-C reporting.

Stop Overpaying For Group Plans Your Team Doesn't Even Like

SimplyHRA lets employers set a fixed monthly ICHRA budget and gives each employee a pre-funded virtual card to buy the health coverage that fits their life—their doctors, their family, their state. No group plan renewals. No one-size-fits-all. Just $29/employee/month, all-in.

Pricing

Free Consultation