Counting to 50: full-time equivalents
The applicable large employer test, month by month: full-time heads, part-time hours over 120, a twelve-month average rounded down.
The ALE test looks back. A company's status for a year depends on the average size of its workforce in the year before, so the count for 2027 is made from 2026's payroll records — and a company that crosses the line in mid-2026 may not be an ALE until 2027, or at all.
Step 1: Count the full-time employees
Anyone with 130 or more hours of service in the month is full-time for that month.
Step 2: Convert part-time hours to FTEs
Add the hours of everyone else, each capped at 120, and divide by 120. Fractions count; round each month to the hundredth if you like.
Step 3: Add them
Full-time plus FTEs, for each of the twelve months.
Step 4: Average and round down
Divide the year's total by 12 and round down to a whole number. 50 or more is an applicable large employer for the next year.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- IRC §4980H(a), (c)(2), (c)(4) (opens in a new tab)Shared responsibility for employers regarding health coverageFree to read
- Federal regulation
- Treas. Reg. §54.4980H-2(b)(1), (c)(2) (opens in a new tab)Counting full-time equivalents, and rounding the annual average downFree to read
- IRS guidance
- IRS — Determining if an employer is an applicable large employer (opens in a new tab)Applicable large employer: 50 full-time employees, FTEs included, in the prior yearFree to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Applicable large employerAn employer that averaged at least 50 full-time employees, full-time equivalents included, over the prior calendar year — the employers the ACA's employer mandate and Form 1095-C reporting apply to. Companies under common control are counted together
- Full-time equivalent employeeFor the ALE count, a month's hours of every employee who was not full-time, each capped at 120, divided by 120. A full-time employee averages 30 hours a week, or 130 hours in a month