Applicable large employer: the 50 full-time employee test

Who counts, month by month

The test looks at the prior calendar year, not the renewal date and not the insurance policy year.

Full-time. An employee who averages at least 30 hours of service a week, or 130 hours of service in the calendar month.

Full-time equivalents. Everyone else. For the month, add their hours of service. Cap any one worker at 120 hours. Divide the sum by 120. That quotient is the full-time equivalent count for the month. Part of a person counts. You do not round each person to a whole employee before you add.

The year. For each of the 12 calendar months, add full-time employees and full-time equivalents. Add those 12 monthly totals. Divide by 12. If the result is 50 or more, the employer is an applicable large employer for the current calendar year.

An employer that did not exist for the whole prior year uses a different expected-employee rule. That case is in the IRS determination page linked below. It is not the ordinary renewal-year math.

Common ownership is one employer for the IRS

Section 414(b), (c), (m), and (o) treats controlled groups, and certain commonly owned trades or affiliated service groups, as one employer. Two sister LLCs with 30 full-time employees each, under the same ownership, are one 60-employee applicable large employer. Each LLC may still sit on its own insurance policy. Whether those policies are small group or large group is the state count, which does not always follow section 414. Large group health insurance is the state table.

The 120-day seasonal exception

The employer is not an applicable large employer if both of these are true. The workforce exceeded 50 full-time employees, counting equivalents, for 120 days or fewer in the calendar year, or for four calendar months or fewer. And the employees who caused the employer to exceed 50 during that stretch were seasonal workers. A season that runs longer than that, or a headcount that stays over 50 after the season, does not get the exception.

What the statute exposes, and what it does not

An applicable large employer is expected to offer health coverage to its full-time employees. The exposure is a shared-responsibility payment, not a carrier underwriting rule.

Section 4980H(a). If the employer does not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents, and at least one full-time employee receives a premium tax credit, a payment can apply for that month. The monthly amount uses the full-time count, with a 30-employee reduction, times the section 4980H(a) amount.

Section 4980H(b). If the employer does offer coverage, but the coverage is not affordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit, a payment can apply for those employees. The payment is capped so it does not exceed the section 4980H(a) amount.

Affordability uses the employee’s required contribution for the lowest-cost self-only option that provides minimum value, measured against a percentage of household income. The IRS publishes the percentage for the year. The percentage is not the same thing as the state rating line, and it is not a reason to guess a contribution strategy from a Form 5500.

Reporting. Applicable large employer members file Form 1094-C (the transmittal) and Form 1095-C (one for each full-time employee, and for others who enrolled) for the calendar year. The forms report what was offered. They do not rate the plan.

None of this tells a carrier whether to community-rate or experience-rate. A group that is an applicable large employer can still be a small group in its state, or the reverse. California’s large-group line is 101 employees. The other nine licensed states start large group at 51, and several of them count eligible employees or full-time equivalents rather than every name on payroll. Large group health insurance.

If you are actually running the plan

The owner or CFO who is shopping or renewing coverage for 50 to 500 employees is in a different conversation than the one this page answers. The plan work is rating, claims, and a side-by-side of fully insured, level-funded, and self-funded when group size and claims fit. Self-funded is a standard option shopped every renewal alongside the other two. A custom self-funded build, once chosen, is priced in the engagement letter before that work starts.

That work is seven steps, Step 1 Introduction through Step 7 All year, every year. For employers with 100 or more employees, Steps 2 to 7 are the Renewal Control Plan, and the Plan Report is its first deliverable. Employers with 50 to 99 employees get the same seven steps. Group health insurance for employers with 50 to 500 employees.

Pay is carrier commission, often set in the rates the carrier files with the state, and it is not billed to the employer. Every dollar paid on the contract is disclosed in writing, in dollars and per employee, before the plan goes through, for the current plan and every option quoted. How I’m paid.

Advisory analysis, not legal or tax advice.

What is an applicable large employer?

An employer that employed an average of at least 50 full-time employees, including full-time equivalents, during the prior calendar year. Full-time means 30 or more hours a week, or 130 or more hours a month. The average is the 12 months of that prior year, added up and divided by 12.

What is the exposure if coverage is not offered, or is unaffordable?

An applicable large employer is expected to offer coverage. The exposure is a shared-responsibility payment. Under section 4980H(a), a payment can apply when minimum essential coverage is not offered to enough full-time employees and at least one full-time employee receives a premium tax credit. Under section 4980H(b), a payment can apply when coverage is offered but is not affordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit.

How do full-time equivalents get counted?

For each calendar month, add the hours of employees who are not full-time. Cap each of those workers at 120 hours. Divide the total by 120. Add that number to the full-time headcount for the month. Do that for all 12 months of the prior year, add the 12 monthly totals, and divide by 12.

Do two companies under one owner count as one employer?

For this IRS test, yes. Internal Revenue Code section 414(b), (c), (m), and (o) aggregates controlled groups and certain commonly owned or affiliated service groups. Two 30-person sister LLCs under common ownership are one 60-employee applicable large employer. Each company’s health policy can still be rated on its own, under the state insurance rule. Large group health insurance.

What is the seasonal worker exception?

If the workforce exceeds 50 full-time employees, counting equivalents, for 120 days or fewer during the calendar year (or four calendar months), and the employees who cause the employer to exceed 50 during that period are seasonal workers, the employer is not an applicable large employer for the next year.

What gets filed, and does this change the insurance rate?

Applicable large employer members file Forms 1094-C and 1095-C for the calendar year. The test does not tell the carrier whether the group is small group or large group. A 40-employee company can be under the IRS line and still be priced as its state defines the group. Carriers rate under state insurance law.

I built and sold a health insurance agency: grew it to 60 agents in about 3 years, then sold it. Licensed insurance agent since 2014: Texas license 2501238, NPN 17369817.