What is an applicable large employer (ALE)?

For many organizations, understanding whether you’re considered an applicable large employer, or ALE, under the Affordable Care Act (ACA) is the first step toward choosing the right health benefit strategy. But between full-time employee equivalents, Internal Revenue Service (IRS) reporting, and employer mandate requirements, it can be challenging to know what you need to offer to stay compliant.

In this guide, we’ll go over what an ALE is, how to determine your employer status, and how Remodel Health can help you meet regulations without the rising costs of traditional group health plans.

In this blog post, you’ll learn:

• How a full-time employee compares to a full-time equivalent employee.
• The federal regulations, such as employer shared responsibility provisions, that ALEs must adhere to.
• How ALEs can provide ACA-compliant benefits.

How much do employers pay for health insurance? Find out the average cost of employer-sponsored coverage.

What is an applicable large employer (ALE)?

An applicable large employer (ALE) is any organization that averaged 50 or more full-time equivalent employees (FTE) during the previous calendar year. This means that you need to offer qualifying health insurance coverage to at least 95% of your full-time employees.

Even if you didn’t maintain 50 employees all year long, your average headcount determines whether you’re considered an ALE for the current year.

If your organization has fewer than 50 FTEs, you don’t meet this employer status. You’re not required to offer health insurance under the federal government’s employer mandate.

What counts as a full-time employee or full-time equivalent employee?

Understanding how to calculate FTEs is essential when determining your ALE status.

Full-time employees

A full-time employee is someone who averages 30 or more hours of service per week, or 130 hours of service in a calendar month.

Full-time equivalent employees (FTEs)

FTEs account for your part-time employees. To determine how many FTEs your part-time employees represent, total all part-time hours of service for a calendar month and divide by 120. Then, add the number of full-time employees to get your total FTE count.

You don’t count owners who aren’t W-2 employees in your FTE counts, such as:

• Sole proprietors
• Owner partners in a partnership or an LLC taxed as a partnership
• 2% or more S-corp shareholders

Because your workforce can fluctuate, you should perform this FTE calculation annually if you’re near the 50 FTE threshold.

Seasonal worker exception

In most situations, you have to count seasonal workers in your FTE calculation.

You can exclude seasonal employees from your FTE calculation if both of the following are true:

• Your organization had more than 50 total employees for fewer than 120 days during the year, and
• Without your seasonal workers, your total employee count would have stayed below 50 during that time

The 120 days don’t have to be consecutive. They can occur at any point throughout the year.

Controlled group rules

Businesses with shared ownership may count as a single employer under ACA standards. In these situations, you must aggregate all entities to determine your total FTEs. This requirement can make ALE calculations more complex, but it ensures you classify your organization accurately.

What is the employer mandate?

ALEs are subject to the ACA’s employer shared responsibility provisions, commonly known as the employer mandate.

According to the mandate, ALEs must provide a health insurance plan to at least 95% of their full-time employees and dependents. The plan must offer minimum essential coverage (MEC), meet affordability standards, and deliver minimum value. Failure to comply may lead to a tax penalty.

ALEs may face two types of employer mandate penalties:

1. Penalty A/Section 4980H(a): If the employer fails to offer MEC to at least 95% of full-time employees and their dependents.
2. Penalty B/Section 4980H(b): If the employer offers coverage, but it’s not affordable or doesn’t provide minimum value.

In either scenario, tax penalties may apply if at least one employee enrolls in an individual health plan and receives a premium tax credit.

Tax reporting requirements

ALEs also have reporting obligations under the ACA. Misfilings can lead to penalties. It’s best to work with a tax professional.

If you’re an ALE, you must complete annual ACA reporting:

• Form 1095-C. You file Form 1095-C for every employee who worked for you during the year, whether or not they enrolled in coverage.
• Form 1094-C. You submit Form 1094-C to the IRS to summarize your total employees by month and the total 1095-C forms issued.

Health benefit options

Meeting the employer mandate doesn’t mean you have to rely on an expensive, one-size-fits-all group plan. Many ALEs are moving toward personalized solutions that offer affordability and flexibility.

The individual coverage health reimbursement arrangement (ICHRA) is becoming increasingly popular. Among large employers, ICHRA adoption rose by 34% from 2024 to 2025.

An ICHRA helps ALEs meet the employer mandate by providing employees with tax-free allowances they can use to buy their own individual health insurance. Remodel Health’s 2024 ICHRA Report found that the average allowance ALEs offer is $448 per month. 

With an ICHRA, employers can:

• Set a predictable monthly allowance
• Help employees with the cost of their individual insurance premiums
• Customize allowances based on 11 employee classes, employee age, and family size

Group health plans vs. ICHRAs

While traditional group health insurance has been the default option for decades, ICHRA is a modern alternative for ALEs.

The chart below shows how both options compare.

How Remodel Health helps applicable large employers (ALEs) provide compliant health benefits

Remodel Health is a leading ICHRA provider for large employers and their broker consultants. We specialize in helping ALEs break free from the rising costs of group health insurance.

Our ICHRA+® administration solution simplifies, streamlines, and strategically enhances modern health benefits. Your employees can conveniently shop for individual health plans straight from their Remodel Health accounts. Plus, our platform integrates with more than 200 payroll and HRIS systems.

With ICHRA+, you get:

• Complete compliance management. We handle all required documentation, including data for Form 1095-C and Form 1094-C reporting. Your plan stays compliant, organized, and worry-free.
• Reliable, secure premium payments. Our AutoPay system processes employee premiums from FDIC-insured accounts with over 99% accuracy, delivering timely payments directly to carriers every month.
• A customized benefit design. We guide you through every step of setup, from choosing your effective date and contribution strategy to defining employee classes.
• Hands-on onboarding support. We provide virtual and in-person education sessions, easy-to-follow ICHRA guides, and one-on-one support from licensed health benefits advisors.

Conclusion

It’s important to determine whether you’re an applicable large employer (ALE) and understand what that means for your organization. Between calculating full-time equivalent employees (FTEs), meeting Internal Revenue Service (IRS) reporting requirements, and finding a health benefit that actually works for your team, there’s a lot to manage. But you don’t have to do it alone.

If you’re looking for a more affordable and fully compliant health benefit, Remodel Health is here to help. Schedule a call with a personalized benefits advisor to start offering an ICRHA to your team!

ICHRA doesn’t just help your bottom line. It can improve the overall employee experience at your organization.