ALE calculator: are you an applicable large employer?

Count your employees

Use last year's numbers: your 2026 workforce decides your status for 2027. The output depends on correctly prepared monthly inputs and does not independently verify worker classification, related employers or an exception.

How the count works

1. For each month, count employees who averaged 30 or more hours a week (130 hours in the month). Hours include paid leave.
2. Add up the hours of everyone else for the month, counting at most 120 hours per person, and divide by 120. That's the month's full-time equivalents; keep the fraction.
3. Add full-time employees and equivalents for each of the 12 months, divide by 12 and round down.
4. 50 or more makes you an ALE for the next calendar year.

Companies under common ownership (a controlled group) are counted together, even if each one is small on its own. Seasonal workers count too, but there's an exception: if you passed 50 for 120 days or fewer, and the extra people were seasonal workers, you aren't an ALE.

The IRS ALE guidance explains the prior-year average, aggregation and seasonal-worker exception.

What counts as an hour, and who counts as an employee

Most counting mistakes come from the inputs, not the arithmetic. The IRS defines an hour of service broadly, and a few groups are left out entirely.

Three worked examples

Edge cases that change the answer

• Controlled groups. Companies related under the tax code's common-ownership rules (Section 414) are combined for the ALE test. For example, two companies with 30 and 25 full-time employees form a 55-person group if their ownership meets those rules; both are then ALE members. Each company is then liable for its own penalties, and the 30-employee reduction in the no-offer penalty is split between them in proportion to their full-time headcounts.
• New companies. A company that did not exist on any business day in the prior year is an ALE in its first year if it reasonably expects to average 50 or more full-time employees, including equivalents, and actually does.
• Seasonal workers. The 120 days don't have to be consecutive, and you can treat four calendar months as 120 days. The exception only helps if everyone above 50 in that window was a seasonal worker, such as holiday retail staff.
• Variable-hour employees. If you can't tell at hire whether someone will average 30 hours a week, you may use the look-back measurement method to decide whether they're full-time for penalty purposes (next section). It doesn't change the ALE count.
• Rehires. An employee who comes back after at least 13 consecutive weeks with no hours of service (26 weeks for schools and universities) can be treated as a new hire.
• Owners. Sole proprietors, partners and more-than-2% shareholders of an S corporation aren't treated as employees, so they don't count. Founders paid as W-2 employees of a C corporation do.

Look-back measurement for variable-hour employees

Once you're an ALE, you must decide each month who is full-time, because penalties are calculated on full-time employees only. For staff with steady schedules, the monthly method is simple: 130 hours in a month means full-time for that month. For hourly staff whose hours swing, the look-back method gives you stable answers.

New variable-hour, seasonal and part-time hires get an initial measurement period of 3 to 12 months. The initial measurement period plus the administrative period can't run past the last day of the first calendar month that begins on or after the first anniversary of the hire date. For ongoing employees, an employer may align a 12-month standard measurement period and a 12-month stability period with its renewal calendar. Do not copy that calendar onto new hires without checking the separate anniversary limit: adding 60 administrative days after a 12-month initial measurement period can exceed it.

What an ALE has to do

ALEs also file Forms 1094-C and 1095-C every year, whether or not they offer coverage. Check what your cheapest plan costs employees with the ACA affordability calculator.

• The 95% rule. The section 4980H(a) test generally requires an offer of minimum essential coverage to at least 95% of full-time employees and their dependent children. The regulation also has a five-employee allowance when greater than 5%. Dependent children for this purpose exclude stepchildren and foster children, and spouses are not included. An employee omitted from an offer can still trigger a section 4980H(b) payment when applicable.
• The (b) penalty has a cap. It can never exceed what the (a) penalty would have been. With 80 full-time employees in 2026, $5,010 each for subsidized employees could not total more than $167,000.
• How the IRS bills it. Review any Letter 226-J against your offer, payroll and tax-reporting records. The Employer Reporting Improvement Act provides at least 90 days to respond before assessment and a six-year assessment period tied to the return due date or actual filing date, whichever is later, under its effective-date rules. Use the letter's deadline and obtain help with disputed employee or offer data.
• Reporting is separate. File the required Forms 1094-C and 1095-C even if no employer shared responsibility payment is owed. Electronic returns generally are due March 31 after the coverage year, adjusted for weekends and holidays. Employee statement furnishing has a conditional alternative website-notice and on-request process. Confirm the tax-year instructions, state requirements and any extension before choosing it. Filing and furnishing failures have separate penalty rules and reasonable-cause provisions.

What to do with your result

1. Under 40: note the date and move on If the full related-employer count and applicable exceptions confirm non-ALE status, no federal employer shared responsibility payment applies. You may still choose to offer coverage: compare options in our guide to the best health insurance for small business.
2. 40 to 49: count monthly from now on Track full-time employees and part-time hours every month in a spreadsheet or your payroll system. Hiring plans for next year decide your status for the year after, so check the count before every big hiring push.
3. 50 or more: pick a coverage offer before January 1 Offer at least one plan that provides minimum value to at least 95% of full-time employees and their children. Use the affordability calculator to set the employee's share for the cheapest self-only plan.
4. Decide how you'll identify full-time employees Use the permitted regulatory categories when choosing monthly or look-back measurement, such as salaried and hourly employees. Document the method and review special transition rules before changing it. Do not create arbitrary named-person categories.
5. Set up 1094-C and 1095-C reporting Your payroll provider, PEO or benefits platform usually prepares the forms. Make sure it receives coverage offer codes for each month, not only enrollment data.
6. Answer any Letter 226-J quickly Check the IRS list of employees against your offer records, collect proof of offers and waivers, and respond within 90 days.

Growing past 50

Crossing the ALE threshold is a reason to review enrollment offers, employee contributions and reporting responsibilities together. Plan price and employer compliance are separate questions. I would assign one owner to the monthly hours record and another to reconciling offers with the year-end filing.

At Prescience, we design and run your company's health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

• An effective $0 deductible, so the plan helps from the first visit.
• Simple copays shown before a visit, capped by a low out-of-pocket maximum.
• A broad national PPO network, plus providers we contract with directly.
• 24/7 physician-led care navigation: a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.