For growth-stage employers, the 50-employee mark isn’t just a headcount milestone. It’s the line where federal healthcare law changes the rules—and where failure to adapt can trigger steep penalties.

Under the Affordable Care Act (ACA), companies that employ 50 or more full-time equivalent employees (FTEs) become what the IRS classifies as an Applicable Large Employer (ALE). That classification triggers a series of regulatory responsibilities, including offering affordable healthcare coverage, reporting to the IRS, and potentially facing fines if the requirements aren’t met.

For companies nearing that line, the question isn't just "are we compliant?" It's "are we structured to scale without risk?"

What Is an Applicable Large Employer (ALE)?

An Applicable Large Employer (ALE) is any company that employed, on average, 50 or more full-time employees or full-time equivalent (FTE) employees in the previous calendar year.

Full-time = 30+ hours per week or 130+ hours per month
FTEs = Part-time employee hours totaled and divided by 120

Example: 35 full-time staff + part-time employees totaling 1,800 monthly hours = 15 FTEs. Total = 50 FTEs.

The IRS uses a 12-month lookback to determine status. Once designated as an ALE, companies must offer coverage to at least 95% of their full-time employees and dependents or risk significant penalties.

Why ALE Status Matters

ACA compliance isn’t optional for ALEs. Two key responsibilities kick in:

Employer Shared Responsibility (the "employer mandate")
Annual IRS Reporting (Forms 1094-C and 1095-C)

Failing to meet either requirement can lead to two major penalties:

Penalty A: If coverage isn’t offered to 95% of full-time staff, companies face a penalty of ~$2,970 per employee (minus the first 30), annually.
Penalty B: If coverage is offered but deemed unaffordable or insufficient, the fine is ~$4,460 per affected employee annually.

These costs add up fast. And unlike other compliance issues, ALE penalties are triggered automatically if an employee accesses subsidized coverage through a public exchange.

Scenario: A company with 75 employees fails to offer compliant coverage. 10 employees qualify for subsidies. Resulting penalties could easily exceed $60,000.

Reporting Responsibilities: Forms 1094-C and 1095-C

ALEs are required to file two key forms annually:

Form 1095-C: Distributed to each full-time employee, detailing coverage offered.
Form 1094-C: Transmittal form submitted to the IRS.

Deadlines vary depending on whether forms are submitted electronically or on paper. Employers must also ensure accurate tracking of employee status and coverage offers throughout the year.

Mistakes in reporting can trigger IRS Letter 226-J—a precursor to penalties. Avoidable with proper planning.

Understanding Control Groups and Aggregation Rules

If a business has common ownership across multiple entities, those entities must be evaluated as a single employer for ALE status.

Parent-subsidiary relationships
Brother-sister controlled groups
Affiliated service groups

This rule often affects private equity portfolios and family-owned enterprises with multiple EINs.

Strategic risk: Companies may incorrectly assume each entity stands alone—only to be penalized after IRS aggregation.

Seasonal Worker Exception: A Common Misunderstanding

Companies can exclude seasonal workers from ALE determination if:

The workforce exceeds 50 FTEs for no more than 120 days
The overage is due exclusively to seasonal employees

Example: A hospitality business adds 30 staff for summer only. If those additions are under 120 days, the company may not be ALE-qualified.

Correct classification matters. Seasonal vs. variable-hour employees are not the same under ACA rules.

Inside a PEO: Where ALE Gets Complicated

For companies partnered with a Professional Employer Organization (PEO), ALE compliance becomes a shared responsibility.

The PEO often handles payroll, benefits, and reporting.
Employer of record status typically shifts to the PEO.
But legal responsibility can remain shared, depending on the structure.

While some PEOs handle 1095-C filings on behalf of clients, others require the employer to maintain ACA documentation and oversight. M&A activity and control group rules can also complicate ALE determinations within PEO relationships.

Strategic Insight / Don’t assume your PEO is covering ALE compliance. Confirm reporting roles, liability structures, and data visibility.

Managing ALE Compliance Independently

For employers who don’t use a PEO or want to validate their approach, ALE compliance involves:

Tracking employee hours monthly using lookback or monthly measurement methods.
Calculating FTEs and seasonal worker exemptions.
Offering health coverage that meets both affordability and minimum value standards.
Filing IRS Forms 1094-C and 1095-C by the annual deadline.
Retaining documentation in case of audits or IRS inquiries.

Tip: Use workforce analytics tools to automate FTE tracking and flag threshold risks before the calendar year closes.

Strategic Decision: PEO vs DIY Compliance

If you're nearing or past the 50-FTE mark, choosing between internal compliance and PEO partnership requires a strategic lens.

PEO Advantages:

Simplified benefits administration
Shared compliance burden
Access to enterprise-level plans

DIY Advantages:

Full control of benefits strategy
Greater transparency into compliance
Potential cost savings if infrastructure exists

Decision Framework
Are you scaling? Merging? Cost-optimizing? The right strategy depends on more than just headcount.

What Growth-Stage Companies Should Do Next

Crossing the ALE threshold shouldn’t trigger panic—but it should trigger a plan. Here’s what to prioritize:

Run a 12-month FTE analysis
Confirm your ALE status
Evaluate your current healthcare offering
Confirm who's handling 1095-C reporting (you or your PEO)
Review cost exposure under Penalty A and B scenarios
Assess control group structures if you operate multiple entities

✅ FTE tracking system in place
✅ Health coverage evaluated for affordability and minimum value
✅ Legal review of aggregation rules
✅ IRS filing responsibilities assigned
✅ PEO contract reviewed for compliance support

Strategic Implications for Diligence, Fundraising, and M&A

ALE status isn’t just an HR concern—it can surface in diligence and impact valuation.

Private equity buyers often assess ACA exposure in diligence. Incomplete filings or misclassified FTEs can stall or reduce deals.
Founders raising capital should be able to speak confidently about healthcare compliance strategy and risk mitigation.
M&A targets must ensure all EINs in a controlled group are properly aggregated—or risk post-close penalties for the buyer.

Strategic takeaway: ALE compliance is a core part of workforce infrastructure. Investors are paying attention.

Tools and Resources

To support internal teams, we recommend.

IRS ALE Overview: irs.gov/affordable-care-act/employers
ACA Compliance Software: Look for FTE tracking, 1095-C generation, and audit logs
Workforce Analytics Platforms: Ideal for scaling companies managing variable-hour labor
Here’s a link to TriNet’s ALE Calculator.

Dinsmore Steele is the Strategic PEO Advisory™ trusted by founders, operators, and private equity.
We help growth-stage companies build compliant, scalable workforce infrastructure—inside or outside a PEO.

PEO Strategy Designed to Scale.™

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