Introduction
Have you ever wondered what makes an employer “large” in the corporate world? If so, you’re in the right place! In this blog post, we’ll break down everything you need to know about an applicable large employer (ALE)—what it means, why it matters, and how it affects both employees and business owners.
Whether you’re an employee looking to understand your benefits or a business owner navigating regulations, this guide will help you get a clear picture in simple, easy-to-understand language. So, let’s dive in!
What is an Applicable Large Employer (ALE)?
An Applicable Large Employer (ALE) is a business that employs an average of 50 or more full-time employees (or full-time equivalent employees) during the previous calendar year. This classification is important because it determines whether a company must comply with certain laws, like providing health insurance under the Affordable Care Act (ACA).
Why Does It Matter?
For companies, being classified as an ALE means they must offer affordable health insurance to their employees. If they fail to do so, they could face penalties under the Employer Shared Responsibility provisions.
For employees, working for an ALE means you have access to employer-provided health insurance and other benefits that smaller companies may not be required to offer.
How to Determine If a Business is an ALE
The IRS defines an ALE based on the number of employees a company has. Here’s how it works:
- Count Full-Time Employees – Any employee working 30 hours or more per week is considered full-time.
- Calculate Full-Time Equivalent (FTE) Employees – If a company has part-time employees, their hours are added together to determine how many full-time positions they would equal.
- Average Over the Year – The total number of full-time and FTE employees is averaged over the previous calendar year.
Example:
- A company has 40 full-time employees.
- They also have 20 part-time employees, each working 15 hours per week.
- Since two part-time employees working 15 hours each equal one full-time employee, the company has 50 full-time equivalents.
- This means the company is an ALE and must comply with ACA regulations.
Employer Responsibilities Under ALE Classification
If a business meets the ALE criteria, they have certain responsibilities under the Affordable Care Act (ACA), including:
✅ Offering Health Insurance – Employers must provide affordable and minimum essential coverage to at least 95% of full-time employees and their dependents.
✅ Reporting to the IRS – ALEs must file Forms 1094-C and 1095-C, detailing the insurance they offer and which employees are covere.
✅ Avoiding Penalties – Failure to provide proper coverage can result in large fines from the IRS, sometimes exceeding thousands of dollars per employee.
Impact on Employees
For employees, working for an ALE comes with some perks:
✔ Guaranteed Access to Health Coverage – You won’t have to worry about whether your employer provides health insurance.
✔ Affordable Plans – The ACA requires that health plans be affordable, meaning your contribution to premiums cannot exceed a certain percentage of your income.
✔ Legal Protections – Employers cannot discriminate or retaliate against employees who seek benefits under the ACA.
Common Challenges for ALEs
Running a company that qualifies as an ALE comes with its own set of challenges:
⚡ Cost Management – Providing health insurance can be expensive for employers, especially with rising healthcare costs.
⚡ Keeping Up with Regulations – ACA rules can be complex and change frequently, requiring businesses to stay updated to avoid penalties.
⚡ Employee Education – Many employees don’t fully understand their healthcare benefits, requiring HR teams to provide education and support.
Conclusion
Being an Applicable Large Employer (ALE) carries significant responsibilities, but it also offers important benefits for both businesses and employees. If you’re a business owner, it’s crucial to understand and comply with ALE regulations to avoid costly penalties. And if you’re an employee, knowing your rights under an ALE can help you take full advantage of the benefits available to you.
