What is an applicable large employer?

What is an applicable large employer (ALE)? An ALE is an employer with 50 or more full-time or equivalent employees. Read on to learn more.

Jacqueline Demarco

Written by

Jacqueline Demarco

Jim Kazliner

Edited by

Jim Kazliner

What is an applicable large employer (ALE)?
3 min read
    0

TL; DR:

  • In 2010, the Affordable Care Act (ACA) aimed to make healthcare more affordable and accessible

  • Businesses with 50 or more full-time or full-time equivalent employees on average during the prior year are considered Applicable Large Employers (ALEs) under the ACA

  • ALEs have to comply with strict rules under the ACA

Employers were greatly impacted by the Affordable Care Act (ACA). Applicable Large Employers (ALEs) need to pay attention to several important rules, including the Employer Mandate and related reporting requirements .

So, what is an ALE? In short, an ALE is a business with 50 or more full-time equivalent employees in the prior calendar year. ALEs are subject to several requirements, including that they must offer affordable healthcare to 95% of their full-time employees and their dependents.

To better understand if you are an ALE and what your responsibilities are, keep reading. 

What is the Affordable Care Act?

Before we dive into how to determine if you are ALE — and what it means for your business if you do fall under this classification — it can be helpful to understand what the ACA is. Enacted in March 2010, this law aimed to reform American healthcare by making it more affordable, allowing for dependent coverage up to the age of 26, and including an employer mandate. 

What is an Applicable Large Employer?

According to the ACA, an ALE must meet certain standards that smaller businesses don’t have to worry about. The two provisions the ACA set forth that ALEs must comply with the Employer Mandate, reporting requirements.

All employers must determine if they meet ALE status on an annual basis. The average size of the businesses’ workforce from the previous year is what will be taken into account. Specifically, your business is classified as an ALE if you had a minimum of 50 full-time or full-time equivalent employees during the last year. If an employer is unsure about how many employees they had on average the year before, they can do some simple math to find their average. To calculate its workforce size for a year, an employer simply adds up the total number of full-time and full-time equivalent employees for each month of the previous year and divides the sum by 12.

Even if your business currently has more than 50 eligible employees, you won’t be considered an ALE if you did not meet those standards in the previous calendar year. Small employers will want to check to see if they are eligible for the Small Business Health Care Tax Credit.

What is a full-time equivalent employee?

It’s a common misconception that businesses don’t need to consider part-time employees when determining if they need to offer a healthcare plan to eligible members of their workforce. Misunderstanding these requirements can lead to mistakes and trouble down the road. 

Knowing how to classify your employees correctly can make it a lot easier to determine if your business is an ALE. Both full-time and full-time equivalent employees count towards ALE status. You must understand which of your employees are full-time or full-time equivalent.. 

To calculate the number of full-time employees,  count the number who work 30 hours per week or 130 hours total during a calendar month.  To calculate the number of full-time equivalent employees, sum together the number of service hours for all non-full-time employees and divide the total by 120 (but do not include more than 120 hours of service for a given employee).

How Thatch can help

With Thatch, you can worry less about health insurance pricing. Your business can save an average of $1,620 annually per employee while still offering them the benefits they need. With the right healthcare partner, you can make your business more competitive in the hiring landscape, while also spending less time managing employee benefits and related issues. Thatch is here to help you on your journey to providing more flexible healthcare for all of your hardworking employees. 

We’re also here to help you navigate any ALE questions you may have. While ACA compliance is the employer’s responsibility, Thatch wants to help support you in any way we can. The best way for us to extend help effectively is if you ensure all of your data in Thatch is current. 

If you want to learn more about how Thatch can assist you in finding the right healthcare coverage for your workforce, sign up for a free demo.

Jacqueline Demarco Thatch Writer
Written by
Jacqueline Demarco /Writer

Jacqueline DeMarco is a freelance writer who lives in the Bay Area and tackles a wide variety of healthcare and wellness topics. She writes for healthcare publications such as Hoag Hospital Foundation, Whisper, Outcomes4Me, USA Today, Newsweek, and more.

Connect with Jacqueline

This article is for general educational purposes and is not legal advice. The opinions shared here belong to the author and are not official statements from Thatch. For legal and tax questions, please feel free to consult with a qualified professional.