Large Employers Must Offer Health Coverage in 2021

Posted by BAS - 07 January, 2021


The Affordable Care Act requires employers that are “applicable large employers” (ALEs) to offer health coverage to their full-time employees or pay a penalty. Employers that are not ALEs are not required, under federal law, to provide health benefits. This makes it important for an employer to know if it is an ALE.

An employer is an ALE for a calendar year if the employer employed an average of at least 50 full-time employees on business days during the preceding calendar year. A part-time employee is counted as a fraction of a full-time employee.

Each employee who works at least 120 hours in a month is considered a full-time employee for ALE determination purposes. It is important to note that this differs from the number of hours used to determine if an employee is full-time (130 hours per month).

The IRS has provided a method for calculating the number of full-time employees during the preceding calendar year for the ALE determination. This method looks at the number of full-time employees during each calendar month of the prior year and then averages this number by dividing by 12.

These are the steps:

  • Step 1: Calculate the number of full-time employees (including seasonal workers) for each calendar month in the preceding calendar year.
  • Step 2: Calculate the number of full-time equivalents (including seasonal workers) for each calendar month in the preceding calendar year. To do this, calculate the hours of service in a month for employees who are not full time employees (taking into account a maximum of 120 hours). Then divide the total hours of service by 120.
  • Step 3: Add the number of full-time employees and full-time equivalents obtained in Steps 1 and 2 for each month of the preceding calendar year.
  • Step 4: Add up the 12 monthly numbers from Step 3 and divide the sum by 12. This is the average number of full-time employees for the preceding calendar year.
  • Step 5: If the number obtained in Step 4 is less than 50, then the employer is not an ALE for the current calendar year.

It may be helpful to remember that if an employer clearly employed fewer than 50 people in the prior year, the employer will not be an ALE. If the employer employed many more then 50 people with few or no part-time employees, the employer will be an ALE without having to do much analysis. The calculation comes into play when an employer employed around 50 people, or if employee count greatly fluctuated throughout the year. Those employers should perform the calculations for determining ALE status.

For information about BAS’ ACA Data Collection and Form Distribution services, contact your account manager or

Topics: Health Care Reform (ACA), Affordable Care Act, HR & Benefit Plans, HR & Benefits News

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