# ALE calculator: are you an applicable large employer?

Source: https://www.getprescience.com/tools/ale-calculator
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-13
Updated: 2026-10-13

You're an applicable large employer (ALE) for a year if you averaged 50 or more full-time employees, including full-time equivalents, during the previous calendar year. Enter your full-time headcount and part-time hours to see where you land and what the employer mandate would cost if you don't offer coverage.

- **ALE threshold:** 50 full-time incl. equivalents
- **Full-time:** 30+ hours/week or 130/month
- **One equivalent:** 120 part-time hours a month
- **2027 penalty, no offer:** $3,780 per FT employee after 30

## Count your employees

_Interactive calculator: open the page in a browser to use it. The rules and figures it applies follow._

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.

**Worked example: one typical month**

| Group | Count | Counts as |
| --- | --- | --- |
| Full-time employees | 42 | 42 |
| Part-timers | 12 working 100 hours each | 1,200 ÷ 120 = 10 |
| Total for the month |  | 52 |

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](https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer) 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.

**Inputs to the ALE count**

| Item | Counts? | Notes |
| --- | --- | --- |
| Hours worked and paid | Yes | Every hour an employee is paid, or entitled to be paid, for work. |
| Paid vacation, holiday, sick days, paid leave, jury duty, military duty | Yes | Paid time off counts as hours even though no work is done. |
| Employees you hire through a PEO | Yes | A PEO doesn't change who the common-law employer is. Your PEO workers count toward your total. |
| Salaried staff whose hours aren't tracked | Yes | You may count actual hours, or credit 8 hours for each day or 40 hours for each week with at least one hour of service. |
| Independent contractors (1099) | No | Only if they are really contractors. Misclassified workers are employees and count. |
| Students in federal or state work-study programs | No | Their work-study hours are excluded. |
| Employees with TRICARE or VA coverage | No, for those months | They aren't counted toward the 50 for a month in which they have that coverage. |
| Hours paid as foreign-source income | No | Hours whose compensation is foreign-source income under the tax rules are excluded. The payroll account's location alone does not decide this. |

> **Use monthly counts for ALE status:** The look-back measurement method (explained below) can decide which employees you treat as full-time for penalties. It can't be used to decide whether you're an ALE. For the ALE test, count each calendar month as it happened.

## Three worked examples

**A company with a steady part-time staff**

Illustrative. A company had 44 full-time employees every month of 2026 and 14 part-timers who each worked about 80 hours a month.

- Full-time employees, average: 44
- Part-time hours per month: 14 × 80 = 1,120
- Full-time equivalents per month: 1,120 ÷ 120 = 9.33
- Monthly total, averaged and rounded down: 53

**ALE for 2027.** The company has fewer than 50 full-time employees, but its part-timers push it to 53. It is subject to the employer shared responsibility and reporting rules. Offering qualifying coverage to its full-time employees and dependents can avoid employer penalties; reporting is still required. Part-timers don't have to be offered coverage.

**A startup that crossed 50 in the middle of the year**

Illustrative. A startup had 38 full-time employees from January to June 2026 and 58 from July to December. It had no part-timers.

- January to June: 6 months × 38 = 228
- July to December: 6 months × 58 = 348
- Annual total: 576
- Average (576 ÷ 12): 48

**Not an ALE for 2027,** even though it ended 2026 with 58 people. Status looks back at the whole prior year. If it stays above 50 through 2027, it will be an ALE for 2028, so plan the coverage offer and reporting during 2027.

**A retailer with a holiday rush**

Illustrative. A retailer had 46 full-time employees all year. From September to December it added 25 seasonal full-time workers who left in January.

- 8 months × 46: 368
- 4 months × 71: 284
- Average before the exception: 54
- Months above 50: 4 (treated as equal to 120 days)

**Not an ALE under the stated assumptions.** The average is 54, but the workforce was above 50 for no more than four calendar months and everyone above 50 was a seasonal worker, so the seasonal worker exception applies. If the extra workers had been year-round hires, or the busy season had lasted five months, it would be an ALE.

## 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.

**The three periods of the look-back method**

| Period | What happens | Length allowed |
| --- | --- | --- |
| Standard measurement period | You track hours for ongoing employees. | 3 to 12 months, chosen by you |
| Administrative period | You work out who averaged 30+ hours and enroll them. | Up to 90 days |
| Stability period | Status is fixed: full-time employees are offered coverage even if hours drop. | At least 6 consecutive months and no shorter than the measurement period |

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

**Employer mandate penalties, per year**

| Penalty | Triggered when | 2026 | 2027 |
| --- | --- | --- | --- |
| 4980H(a) | Coverage isn't offered to at least 95% of full-time employees and one gets a marketplace subsidy | $3,340 per FT employee after the first 30 | $3,780 per FT employee after the first 30 |
| 4980H(b) | Coverage is offered but unaffordable or not minimum value, for each FT employee who gets a subsidy | $5,010 per subsidized employee | $5,670 per subsidized employee |

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](https://www.getprescience.com/tools/aca-affordability-calculator).

**What no offer costs an 80-person company**

Illustrative. An ALE with 80 full-time employees offers no coverage for all of 2026, and at least one employee buys a marketplace plan with a premium tax credit.

- Full-time employees: 80
- Less the first 30: 50
- 2026 rate: $3,340
- 2026 penalty: $167,000
- Same company in 2027: $189,000

The penalty is owed on all 50 employees above 30, not only the one who got a subsidy. It is calculated month by month (one-twelfth of the annual amount) and should be compared with a documented coverage budget rather than assumed to be cheaper or more expensive than insurance.

- **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](https://www.getprescience.com/guides/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](https://www.getprescience.com/tools/aca-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.

## Frequently asked questions

**How do you calculate full-time equivalent employees for the ACA?**

Each month, add the hours of employees who aren't full-time (at most 120 per person) and divide by 120. Add that to the month's full-time employees, average the 12 months of the prior year and round down.

**Are part-time employees counted toward the 50-employee threshold?**

Yes, as full-time equivalents. But penalties are only calculated on full-time employees, and part-timers don't have to be offered coverage.

**When does a new company become an ALE?**

A company that did not exist on any business day in the prior year is an ALE if it reasonably expects to average 50 or more full-time employees, including equivalents, in the current year and actually does.

**What is the ALE penalty for 2027?**

$3,780 per full-time employee after the first 30 for not offering coverage, and $5,670 per subsidized full-time employee for unaffordable coverage (IRS Revenue Procedure 2026-22). For 2026 the amounts are $3,340 and $5,010.

**Do employees hired through a PEO count toward the 50?**

Yes. A PEO handles payroll and benefits, but your company is still the common-law employer, so PEO employees count toward your ALE status.

**Do commonly owned companies count together?**

Yes. Companies in the same controlled group or affiliated service group under Section 414 are combined for the ALE test. If the group reaches 50, every member is an ALE member, even one with only a few employees.

**If I cross 50 mid-year, do I have to offer coverage right away?**

For an existing employer, generally the prior-year average controls. New employers, predecessors and related employers require separate review. Crossing 50 in 2026 does not by itself determine either year's obligations.

**Does the seasonal worker exception apply to any temporary staff?**

Only if the workforce exceeded 50 for 120 days (or four calendar months) or fewer during the year and everyone above 50 in that time was a seasonal worker.

## Sources

- [IRS, Determining if an employer is an applicable large employer](https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer)
- [IRS, Questions and answers on employer shared responsibility](https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act)
- [IRS, Employer shared responsibility provisions](https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions)
- [IRS Revenue Procedure 2025-26 (2026 employer mandate penalties)](https://www.irs.gov/pub/irs-drop/rp-25-26.pdf)
- [IRS Revenue Procedure 2026-22 (2027 employer mandate penalties)](https://www.irs.gov/pub/irs-drop/rp-26-22.pdf)
- [IRS, Identifying full-time employees](https://www.irs.gov/affordable-care-act/employers/identifying-full-time-employees)
- [Employer Reporting Improvement Act, H.R. 3801 (2024)](https://www.congress.gov/bill/118th-congress/house-bill/3801)
- [26 CFR 54.4980H-1, definitions and owner exclusions](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4980H-1)
- [IRS, Forms 1094-C and 1095-C instructions](https://www.irs.gov/instructions/i109495c)
- [26 CFR 54.4980H-2, ALE and seasonal rules](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4980H-2)
- [26 CFR 54.4980H-3, monthly and look-back measurement](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.4980H-3)