The Affordable Care Act (ACA) employer mandate is one of the most important compliance requirements for businesses operating in the United States.

Under this provision, employers with 50 or more full-time equivalent (FTE) employees, known as Applicable Large Employers (ALEs), are required to offer affordable health insurance that provides minimum essential coverage to at least 95% of their full-time workforce and their dependents.

It’s not easy to know whether your company qualifies as an ALE. It involves accurately calculating part-time hours, understanding how seasonal workers factor in, and applying the correct formulas to arrive at your total FTE count.

Many businesses mistakenly assume they fall below the 50-employee threshold, only to discover later that their combined workforce places them within ACA employer mandate requirements.

This article discusses how to calculate your FTEs and determine if you’re considered an ALE in 2025.

What Is the ACA Employer Mandate?

The Affordable Care Act (ACA) Employer Mandate, also known as the “employer shared responsibility provisions,” requires certain employers, (referred to as ALEs), to either offer qualifying health coverage or potentially face substantial financial penalties.

Under Section 4980H of the Internal Revenue Code, the ACA Employer Mandate obligates ALEs to offer Minimum Essential Coverage (MEC) that is affordable and provides minimum value to their full-time employees and their dependents.

Who It Applies To

An employer qualifies as an Applicable Large Employer (ALE) if, on average, it employed 50 or more FTE employees during the previous calendar year. This includes full-time employees (30 hours/week or 130 hours/month) and aggregated part-time hours converted into FTEs using the IRS formula.

ALE status is determined annually:

• Sum the total full-time employees each month.
• Sum the total part-time employee hours (capped at 120 hours per individual each month), and divide by 120 to convert to FTEs.
• Add the full-time headcount and FTEs, divide by 12, and round down. If the result is 50 or more, you're an ALE for the current year.

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Penalties for Non-Compliance

In 2025, the IRS reduced the penalty amounts under the employer mandate, but they’re still significant:

Penalty A (Section 4980H(a))

This is imposed when an ALE fails to offer MEC to at least 95% of full-time employees (and dependents), and at least one employee receives a premium tax credit on the Marketplace.

The penalty is $2,900 per full-time employee annually, applied monthly at $241.67, after excluding the first 30 full-time employees.

Penalty B (Section 4980H(b))

It applies when an ALE offers coverage to 95%+ of full-time staff, but the coverage is either not affordable or lacks minimum value, and at least one employee obtains a premium tax credit. In 2025, this penalty is $4,350 annually per affected employee, or $362.50 per month, only for each full-time employee receiving a tax credit.

What Is an Applicable Large Employer?

An Applicable Large Employer (ALE) is a business that is considered an ALE under the Affordable Care Act if it averaged 50 or more full-time equivalent (FTE) employees during the previous calendar year.

This classification is important because ALEs are subject to specific employer mandate requirements, including offering Minimum Essential Coverage (MEC) or facing penalties.

The 50-FTE Threshold

The ACA uses a combined count of full-time employees (those working at least 30 hours per week or 130 hours per calendar month) and full-time equivalent employees, which are calculated by totaling the hours of part-time staff (capped at 120 hours per employee per month) and dividing by 120.

If an employer’s monthly totals, averaged across all 12 months of the prior year, reach or exceed 50, the employer is classified as an ALE for the current year.

Annual Determination Process

Assessing ALE status is an annual requirement, based on the prior year’s average workforce size. Employers must:

• Add up the number of full-time employees each month.
• Calculate FTEs for part-time workers each month (total part-time hours ÷ 120).
• Sum those two figures per month, then average over 12 months.

Even new employers can be subject to ALE rules if they reasonably expect to employ at least 50 FTEs during the current year, even without a prior year to average.

How to Calculate Full-Time Equivalent (FTE) Employees

Who Qualifies as a Full-Time Employee?

Under the ACA, a full-time employee is defined as someone who works at least 30 hours per week or at least 130 hours per calendar month.

You can use two methods to determine a full-time employee:

• Monthly measurement method: Classify employee status each month; if they work 130 or more hours, they're considered full-time that month.
• Look-back measurement method: Used for variable-hour or seasonal employees to determine status over a prior measurement period. However, this method cannot be used for calculating ALE status.

How to Count Part-Time Employees

Not all workers meet the 30-hour threshold, but their hours still contribute toward your ACA headcount as full-time equivalent (FTE) employees.

Here’s the formula:

Total monthly hours of all part-time (non-full-time) employees ÷ 120 = FTE count for that month

This formula comes directly from IRS guidelines and is used across ACA compliance tools.

For instance, if you have part-timers working a combined 900 hours in a month:

FTEs = 900 ÷ 120 = 7.5 FTEs for that month

This allows part-time hours to be standardized into full-time equivalents for meaningful ALE threshold calculations.

Seasonal Employees and Special Considerations

Seasonal employees can impact your ALE status, but the ACA provides an important exception.

If your workforce exceeds the 50-FTE threshold for 120 days or fewer during the year, and the excess headcount is all seasonal workers, you may exclude that period when calculating ALE status.

In practice, this means that if, during a busy holiday season, you temporarily exceed 50 FTEs, your business may still not be considered an ALE. Also, employers may apply a reasonable, good-faith definition of “seasonal worker” per IRS and Department of Labor guidelines.

Example Calculation

Consider the ACA-compliant example below that combines full-time, part-time, and the seasonal rule:

• 40 employees each work ≥130 hours/month; 40 full-time employees
• 20 part-time employees each work 60 hours/month; combined 1,200 hours
• No seasonal exception applies here

Step 1: Calculate part-time FTEs

1,200 total part-time hours ÷ 120 = 10 FTEs

Step 2: Combine full-time count and part-time FTEs

40 full-time + 10 FTEs = 50 total FTEs

Step 3: Determine ALE status (annual average)

If this scenario reflects a typical month and is maintained across a year, you'd average the monthly totals (sum over 12 months ÷ 12). If the average is 50 or more, you are considered an ALE for the next calendar year.

ACA Employer Mandate Calculator for 2025

How Calculators Simplify Compliance

Instead of manually aggregating hours, applying rounding rules, and interpreting IRS thresholds, ACA calculators automate these calculations.

They help you quickly determine if your organization qualifies as an ALE, whether you meet the 50+ FTE threshold, and if your health coverage offerings are affordable and compliant. These tools reduce administrative burden, minimize calculation errors, and provide peace of mind.

Inputs Needed

To use such a calculator effectively, you’ll need to input:

• Full-time employee count: Those working at least 30 hours per week or 130 hours per month.
• Part-time hours: Aggregate all part-time employees’ monthly service hours (capped at 120 hours per worker).
• Seasonal employee adjustments: Note if your workforce exceeds 50 FTEs for 120 days or fewer and whether the excess is seasonal workers, which may exempt you from ALE status.
• For affordability evaluation: Employee wages or safe harbor data (e.g., W-2 wages, hourly rate × 130, or Federal Poverty Line).

Steps for Using an Online ALE/FTE Calculator

• Open an ALE/FTE calculator such as those offered by ACAwise, PeopleKeep, or Equifax.
• Enter your full-time employee count for each month.
• Add aggregated part-time hours per month and divide by 120 to convert into FTEs.
• The tool sums full-time and FTE counts across 12 months and averages to determine if you meet the 50+ threshold.
• For affordability checks, use safe harbor inputs (e.g., W-2 wages, hourly rate, or FPL) to confirm whether your offered plan stays within the 9.02% threshold.

What Happens If You’re an ALE in 2025?

If your business qualifies as an ALE, you become subject to a set of compliance rules under the ACA. Here's what that means:

Compliance Requirements

As an ALE, you must offer minimum essential coverage (MEC) to at least 95% of your full-time employees (and their dependents up to age 26) to avoid the Section 4980H(a) “A-Penalty.”

Coverage qualifies as affordable in 2025 if an employee’s share of the premium for the least expensive self-only plan does not exceed 9.02% of their household income.

In addition, the plan must provide minimum value (MV), meaning it should cover at least 60% of expected healthcare costs and include inpatient and physician services.

Minimum Essential Coverage (MEC) Requirements

MEC includes employer-sponsored major medical plans but does not include plans like dental, vision, FSAs, or EAPs. Ensure your offerings are classified as MEC and also meet MV and affordability thresholds to protect your business from penalties.

Reporting Requirements

ALEs are required to submit Form 1094-C (transmittal) and Form 1095-C to the IRS annually, detailing coverage offers made to full-time employees, including affordability and MV data.

Copies must also be furnished to employees: the deadline to furnish to employees is March 3, 2025, and for filing with the IRS, deadlines are February 28 (paper) or March 31 (electronic).

New rules (effective for coverage years after December 31, 2024) extend the IRS’s response window to penalty notices (Letter 226-J) from 30 to 90 days, and set a six-year statute of limitations on penalty assessments.

Tips for Staying ACA Compliant in 2025

Here are strategies to help you stay ACA compliant:

Use HR/Payroll Software for Tracking Hours

Implement reliable HR and payroll software to accurately track employee hours, especially for part-time and variable-hour employees. These systems can automate calculations, reduce errors, and provide real-time data on FTE counts. By integrating time-tracking features, you can ensure all hours worked are accounted for, thereby helping you determine your ALE status and avoid potential penalties.

Run Mid-Year Checks to Avoid Surprises

Conduct mid-year compliance checks to ensure your ACA reporting and health coverage offerings align with regulatory requirements. This includes:

• Reassessing Employee Classification: Verify that employees are correctly classified as full-time or part-time based on their actual hours worked.
• Reviewing Health Plan Offerings: Ensure your health plans meet the Minimum Essential Coverage (MEC) and affordability standards.
• Updating Employee Data: Confirm that all employee information is current and accurate to prevent issues during reporting.

Mid-year checks allow you to identify and address any discrepancies early, thus reducing the risk of non-compliance.

Work with Benefits or Compliance Consultants

Engaging with benefits or compliance consultants can provide expert guidance tailored to your organization's needs. These professionals can assist with:

• Managing Complex Regulations: Stay updated on changes in ACA requirements and how they impact your business.
• Optimizing Health Plan Offerings: Ensure your health plans are compliant and cost-effective.
• Streamlining Reporting Processes: Receive assistance with completing and filing necessary ACA forms accurately and on time.

Use ACA Calculators Regularly

ACA calculators can help you simplify the process of determining your ALE status and assessing compliance. These tools can help you:

• Accurately determine your FTE count by inputting employee hours worked.
• Evaluate whether your health plans meet the affordability threshold based on employee income.
• Organize data needed for Forms 1094-C and 1095-C to ensure timely and accurate submission.

How Chore Helps Startups Stay ACA Compliant and Avoid FTE Calculation Mistakes

For startups approaching the 50-employee mark, it can be challenging to accurately calculate FTE employees and maintain ACA compliance.

Chore simplifies this process by automating HR and payroll workflows, thereby ensuring every hour worked, full-time, part-time, or seasonal, is accurately tracked.

Our platform reduces human error and saves valuable administrative time by integrating time-tracking, employee classification, and payroll management into one platform.

You can use Chore to run real-time FTE calculations, monitor coverage eligibility, and prepare the necessary documentation for IRS reporting. Its intuitive dashboards provide clear insights into workforce composition, thereby helping founders identify if their organization qualifies as an Applicable Large Employer (ALE) under the ACA.

This proactive approach minimizes the risk of penalties under Sections 4980H(a) and 4980H(b) and ensures coverage offerings meet MEC and affordability standards.

Ready to automate employee tracking and calculate your FTEs accurately? Schedule a free consultation today to discover how Chore can help you stay fully ACA-compliant.

FAQs

What is the difference between full-time employees and FTEs under ACA?

Under the ACA, full-time employees are those working 30+ hours per week or 130+ hours per month and must be offered health coverage if the employer is an ALE. FTEs include part-time employees converted into full-time units (total part-time hours ÷ 120) and are used to determine if an employer reaches the 50-employee threshold to qualify as an ALE.

How do seasonal employees impact ALE status?

Seasonal employees generally don’t count toward the ACA’s 50-FTE threshold if they work 120 days or fewer in a year. This can help a business stay below the ALE cutoff. However, if a seasonal employee works more than 120 days or becomes full-time, they must be counted toward FTE totals. Accurate tracking of hours and employment periods helps avoid errors that could push a company over the ALE threshold and trigger ACA penalties.

How often should I calculate my FTE count?

You should calculate your FTE count at least once a year to determine ALE status for ACA compliance. For businesses with changing workforces, quarterly or mid-year checks are recommended to avoid surprises, ensure accurate coverage, and catch misclassifications early. Using payroll software for ongoing tracking helps maintain accuracy and reduces the risk of penalties.

What penalties apply if I don’t provide coverage as an ALE?

If an ALE doesn’t provide proper ACA coverage, they face IRS penalties below:

• Not Offering Coverage (“A” Penalty): $2,970 per full-time employee after the first 30 if coverage isn’t offered to at least 95% of full-time employees and their dependents.
• Offering Unaffordable or Inadequate Coverage (“B” Penalty): $4,460 per employee who gets a marketplace premium tax credit because your plan is unaffordable or doesn’t meet minimum value.

Penalties are assessed annually, and proper reporting via Forms 1094-C and 1095-C is required.

Do part-time workers count toward the 50 FTE threshold?

Yes, part-time workers do count toward the 50 FTE, but not individually. Instead, their hours are combined and converted into full-time equivalents. Here’s how it works under the ACA:

• Count all part-time employees’ hours in a month (those working less than 30 hours per week).
• Divide the total monthly part-time hours by 120 to calculate their FTE contribution. For instance, if your part-time staff worked a combined 600 hours in a month = 600 ÷ 120 = 5 FTEs.
• Add the full-time employees (30+ hours per week) to this number.
• If the combined total is 50 or more FTEs, your business is considered an ALE (Applicable Large Employer) under ACA rules.

Contractors do not count, only employees (full-time and part-time) whose hours you track.