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ACA basics for employers
The employer side of the Affordable Care Act comes down to three questions: do the rules apply to you, which of your employees are full-time, and did you offer them coverage that counts.
1. Are you an applicable large employer?
The employer mandate and 1095-C reporting apply to applicable large employers (ALEs) — businesses that averaged 50 or more full-time and full-time equivalent employees across the prior calendar year. Status is always determined by looking backward: your 2026 obligations are set by your 2025 headcount.
Related companies under common ownership are combined into a single "controlled group" for the 50-employee test. Each company with its own EIN still files its own forms, but the size test uses the combined count.
a. Count every employee who averaged 30+ hours per week (130+ per month) — these are your full-time employees.
b. Add up all hours worked by everyone else in the month, cap each person at 120 hours, and divide the total by 120. That's your FTE count.
c. Add (a) + (b) for each month, add the 12 monthly totals, divide by 12.
Seasonal-worker relief may apply if you only exceed 50 for four months or fewer.
2. Who is full-time?
Under the ACA, full-time means an average of 30 hours per week or 130 hours per month — not your internal definition, and not what your handbook says. Hours of service include paid time off, holidays, jury duty and other paid leave, not just hours actually worked.
This is why part-time and variable-hour staff matter so much: an employee your team thinks of as part-time can cross 130 hours in a month and become full-time for ACA purposes.
3. Measurement methods
Whichever method you use, it must be applied consistently to each permitted class of employees, and we need to know which one you use before we can code your forms.
4. What counts as an offer of coverage
To avoid penalties, an ALE must offer minimum essential coverage to at least 95% of full-time employees and their dependent children, and that coverage must be both affordable and provide minimum value (paying at least 60% of expected costs).
Affordability is measured against the employee's cost for the lowest-cost, employee-only plan option, using one of three safe harbors: W-2 wages, rate of pay, or federal poverty line. The affordability percentage is indexed annually, so confirm the current year's figure before you set contributions.
5. The two employer penalties
Penalty amounts and the affordability percentage are indexed each year. We confirm the current figures with you as part of year-end review.