If you have 50 or more full-time equivalent (FTE) employees, you may wonder what your responsibilities are under the Affordable Care Act (ACA). Understanding the rules regarding minimum essential coverage (MEC), affordability, and minimum value can be challenging. But these regulations, outlined in the ACA’s employer mandate, are critical to your business’s success.
Applicable large employers (ALEs) that don’t comply with the employer mandate can be subject to significant penalties. That’s why it's crucial to have a good grasp of the requirements.
In this blog post, you’ll learn:
- How to determine if your business qualifies as an ALE under the ACA.
- What the ACA employer mandate entails and how to avoid penalties.
- Insights into the tax reporting responsibilities for ALEs, including those for employers offering an individual coverage health reimbursement arrangement (ICHRA).
The federal government considers a company an ALE if it has at least 50 FTEs. Under the ACA, an employee is a full-time worker if they average at least 30 hours of service per week or at least 130 hours of service during the calendar month.
However, your FTE count is the sum of your organization's full-time employees and the equivalent full-time hours worked by part-time employees.
You don’t need 50 FTEs at all times to be an ALE. Generally, if an employer has a monthly average of at least 50 FTEs during a current calendar year, the IRS considers them an ALE for the following calendar year.
To determine if your business is an ALE, you must count all your full-time employees and the full-time equivalent of your part-time workers. For these calculations, you count only U.S. employees. You also don’t count sole proprietors, partners in a partnership, independent contractors, or S-corporation shareholders who own 2% or more of the company as employees.
Here’s a quick step-by-step overview of the FTE calculation:
If your seasonal workers’ hours cause your FTE count to exceed 50 or more, you may be able to apply for the seasonal worker exemption1.
You qualify for the seasonal worker exemption if you meet both of the following criteria:
Your number of employees will likely change annually. So, recalculate your FTEs each calendar year to keep your ALE status updated.
Businesses with shared ownership are considered a controlled group and must determine whether the entire group is an ALE. These employer aggregation rules apply even if the companies are separate legal entities.
If the controlled group is an ALE, each component—or individual business—of that group is also an ALE, regardless of its individual FTE count. This means the company is also subject to the employer shared responsibility provisions.
Generally, you use information from the prior calendar year to determine your ALE status. If an employer existed only for part of the previous calendar year, they can prorate the calculations.
Suppose a company wasn’t in existence on any business day in the prior calendar year. In this case, the employer is an ALE if they are reasonably expected to hire an average of at least 50 FTEs on a business day during the current calendar year.
The employer shared responsibility provisions of the ACA are commonly called “the employer mandate.” The additional rules within the employer mandate apply only to ALEs.
The ACA employer mandate requires ALEs to offer at least 95% of their full-time workers and their dependents affordable health insurance that meets MEC and provides minimum value. If they don’t, they may be subject to employer mandate penalties in the form of shared responsibility payments.
If you have fewer than 50 FTEs, the federal government doesn’t consider you an ALE. Therefore, you don’t have to offer your employees health coverage. You also won’t face any penalties.
Minimum essential coverage (MEC) is the minimum level of health coverage an ALE must provide to at least 95% of their full-time employees to avoid paying a penalty.
ALEs must offer their employees employer-sponsored health insurance that provides MEC, which could be in the form of:
ALEs must offer their employees coverage that provides minimum value. This means the policy must cover at least 60% of the average costs for a standard population, which is the actuarial value for bronze plans sold on the individual market. Employers who don’t comply will be subject to a penalty.
In addition to minimum value, qualified health plans must provide employees with substantial coverage for inpatient medical care and physician services.
You calculate affordability using an employee’s household income and the share they must pay toward their monthly health insurance premium.
In 2025, the IRS considers an employer-sponsored health plan affordable as long as the premium for the lowest-cost self-only coverage doesn’t exceed 9.02% of an employee’s annual household income. Total household incomes include income from everybody in the household who files a tax return2.
You can use the ACA’s safe harbors since you likely don’t know your employees’ household incomes. The most popular safe harbor uses the annual federal poverty level (FPL).
Employers offering an individual coverage HRA (ICHRA) to satisfy the ACA must provide an affordable allowance to at least 95% of their full-time employees. You’ll use the lowest-cost individual silver plan to calculate the minimum HRA allowance you must offer. You’ll also use the non-tobacco user rate even though it may not reflect the employee’s situation.
Your allowance must be greater than or equal to the minimum to be “affordable.” If it’s less than that, the ICHRA is unaffordable, and you may face a penalty.
The federal government allows you to use affordability safe harbors if you need help calculating affordability to avoid penalties. In addition to affordability requirements, those with an ICHRA must ensure their plans meet minimum value. Employees participating in the benefit must purchase family coverage or self-only coverage from a public or private exchange. They can also buy a catastrophic plan, Medicare policy, or student health plan (except for self-insured student coverage) if eligible.
The following plans don’t currently meet the minimum value requirement for an ICHRA plan:
The federal government also doesn’t consider these plans individual coverage. Therefore, employees with these policies aren’t eligible to participate in an ICHRA. However, these individuals can buy other qualified health insurance and accept your ICHRA benefit. Or they can decline the ICHRA if their allowance is unaffordable and buy another policy type.
However, if your ICHRA is unaffordable and an employee is eligible for federal subsidies, like premium tax credits, you may be subject to an employer shared responsibility provisions penalty.
Yes, the employer mandate requires you to offer compliant, affordable health coverage to 95% of full-time employees and their dependents. Under the employer mandate, a dependent is an employee’s child who hasn’t reached the age of 26. This includes a child who has been legally adopted or placed for adoption.
The ACA doesn’t consider the following individuals to be eligible for dependent coverage:
There are two types of employer shared responsibility tax penalties:
In each case, these ALEs are only subject to these potential penalties if at least one full-time employee receives premium tax credits to help them purchase coverage on the ACA Marketplace.
Now that we’ve reviewed the details of each penalty and how they’re affected by tax subsidies let’s examine the cost of failing to meet the requirements.
The IRS adjusts both employer mandate penalties annually. The IRS will impose the greater of the two fines, meaning you can’t receive both penalties.
For 2025, the penalty amounts are as follows3:
Get our employer mandates penalties flowchart to learn more about how you can avoid costly fines.
ALEs employ more than 20 people for over half of a business year, which means they’re subject to federal COBRA coverage rules. You must allow eligible employees to elect COBRA when terminating them from group health insurance or an ICHRA benefit. You may also be subject to additional state COBRA laws.
Reporting requirements dictate that ALEs who provide an ICHRA must complete certain tax forms to determine affordability for their ICHRA plan.
You must complete the following tasks to comply with federal regulations:
You must combine all your tax forms. Additionally, if you’re filing ten or more aggregate returns, you must file electronically5. The deadline for filing electronically is March 31 of the following year6.
If you need more time to file your reporting forms, you can get a 30-day extension by submitting Form 8809 if your reason for extension has good cause7. Work with your tax advisor if you need help completing Forms 1094-C, 1095-C, or 8809.
Minimum class size requirements only apply to ALEs offering employer-sponsored group coverage to at least one class of employees while offering an ICHRA to another class. While there are 11 potential ICHRA employee classes, only some have class size requirements.
Minimum class size rules apply to the following employee classes:
If the ICHRA is your only health benefit, minimum class size rules don’t apply. However, there are class size requirements based on organization size.
The class size minimums are as follows:
PeopleKeep’s HRA software helps you design your ICHRA benefit to comply with the employer mandate requirements. Through our platform, you can set a custom allowance that fits your budget and is affordable for all your employees.
While we do everything we can to help you comply with federal regulations, it’s ultimately your responsibility to create an IRS-compliant employee benefit.
As overwhelming as the ACA regulations seem, ALEs must understand them to stay compliant. Those who fail to meet the employer requirements may have to pay costly penalties, including fines for failing to complete their reporting obligations.
Employers subject to ACA requirements may find searching for a quality health benefit challenging. But, a customizable and flexible ICHRA can suit every organization’s needs. At PeopleKeep, we help small and medium-sized businesses offer health benefits through our ICHRA administration platform. If your organization is a larger ALE or looking for more robust support, our parent company, Remodel Health’s ICHRA+, is a great option.
This article was originally published on October 8, 2020. It was last updated on January 10, 2025.
1. ALEs and seasonal employees
2. Affordable health insurance coverage
4. Information reporting of health insurance coverage
5. E-filing rules for ACA tax form filings
6. Information reporting under Sections 6055 and 6056