- On October 13, 2026
More than a decade after the employer mandate took effect, the same mistakes still show up.
Many HR generalists and benefits coordinators entered the field after the Affordable Care Act’s core employer rules were already in place. They did not experience the guidance as it was issued, and much of what they know was learned secondhand. The result: familiar mistakes are showing up again, especially around measurement and stability periods, the two meanings of “seasonal,” affordability math, and reporting.
Here is a refresher you can use with clients heading into 2027 open enrollment.
Start with One Question: Is the Client an ALE?
Applicable large employer (ALE) status is the gateway. To limit potential employer shared-responsibility liability, an ALE generally must offer minimum essential coverage to at least 95% of its full-time employees and their dependents. The coverage must also be affordable and provide minimum value.
A non-ALE generally is not subject to the employer mandate. However, a non-ALE that sponsors a self-insured health plan may still have separate ACA reporting obligations.
- Full-time: Count full-time employees (generally those averaging 30 or more hours of service per week or 130 hours per month) for each month of the prior calendar year.
- Full-time equivalents: Add each non-full-time employee’s monthly hours of service, capping each person at 120 hours, then divide the total by 120.
- Average: Add full-time employees and full-time equivalents for each month, then average across all 12 months. An average of 50 or more makes the employer an ALE for the entire next calendar year.
- Aggregate: Count employees across the controlled group or affiliated service group. Commonly owned or related entities may need to be treated as one employer for ALE-status purposes.
The test looks backward and runs once a year: 2026 data determines 2027 ALE status. A client at 300 employees likely knows where it stands. A client near 50 — especially one with related entities — should run the calculation carefully. 49.9 is not 50.
“Full-time” is Broader than Hours Worked
For ACA purposes, full-time generally means 30 hours of service per week or 130 hours of service per month. Hours of service include hours worked plus paid nonworking time, such as vacation, holidays, sick time, jury duty, military duty, and other paid leaves.
Employers may use the monthly measurement method or the look-back measurement method. If using the look-back method, it must be applied consistently within permitted employee categories, such as salaried versus hourly, union versus non-union, employees in different states, and employees of separate entities. Job titles such as “manager” and “server” are not permitted categories.
New Hires: Decide the Track on Day One
Track A: Reasonably expected to be full-time: Coordinate plan eligibility and enrollment so coverage is offered no later than the ACA’s applicable deadline — generally, the first day of the fourth full calendar month of employment — while also complying with the separate 90-day waiting-period limit.
Track B: Variable-hour, seasonal, or part-time employees: These employees may be placed in a 3–12 month initial measurement period, followed by an administrative period. Together, these periods generally may not exceed 13 months plus the partial month of hire.
Employees who measure as full-time receive a stability period that is at least as long as the measurement period and no shorter than six months. Once eligible, they generally retain coverage through that stability period even if their hours drop.
Design the measurement, administrative, and stability periods so that employees determined to be full-time receive timely offers and do not experience an avoidable coverage gap. For many employers, a 12-month measurement period and 12-month stability period, with the administrative period aligned to open enrollment, is a practical approach.
The common breakdown is inconsistent coordination between hiring, HR, payroll, and benefits administration. Calling someone variable-hour does not make that person variable-hour. The test is whether there is real uncertainty, at hire, about whether the employee will average at least 30 hours per week.
“Seasonal” Means Two Different Things
Seasonal Employee: For measurement purposes: A seasonal employee is hired into a position for which customary annual employment is six months or less and begins around the same time each year — for example, holiday retail or ski-season roles. A school-year role lasting roughly 10 months would generally not meet this definition.
Seasonal-Worker Exception: For ALE status: An employer may avoid ALE status if its workforce exceeds 50 full-time employees, including full-time equivalents, for 120 days or fewer during the calendar year, and the employees above the threshold are seasonal workers.
The terms “seasonal employee” and “seasonal worker” are related but not interchangeable. Make sure the employer is using the right definition for the question being asked.
Affordability is a Legal Test, Not a Feeling
Affordability is measured using the employee contribution for the lowest-cost, self-only coverage option that provides minimum value — not the plan the employee elected and not dependent premiums.
Employers may use one of three affordability safe harbors:
- W-2: Box: W-2 wages × the applicable affordability percentage. This can work well where overtime is common, but employers do not know the final W-2 result until after year-end.
- Rate of Pay: Hourly rate × 130 hours, or monthly salary × the applicable affordability percentage. This is predictable and can be set in advance.
- Federal Poverty Line: Mainland federal poverty line × the applicable affordability percentage ÷ 12. For a 2027 calendar-year plan using the 2026 mainland FPL, the maximum employee contribution is $135.92 per month.
The affordability percentage has increased in each of the past three years: 9.02% for 2025, 9.96% for 2026, and 10.22% for plan years beginning in 2027. Use 10.22% for 2027 contribution modeling now.
For non-calendar-year plans, confirm the percentage that applies at the start of the plan year and the appropriate FPL amount before setting contributions.
Employers generally do not know an employee’s household income, which is why the safe harbors matter. Employer shared-responsibility exposure generally arises only when a full-time employee receives a premium tax credit.
Reporting is Still Required, and the IRS is Looking
Forms: Form 1094-C is the employer transmittal and summary return. Form 1095-C reports each employee’s month-by-month offer information. Controlled-group members generally determine ALE status together, but each ALE member files under its own EIN.
Mechanics: Confirm the federal deadlines applicable to the reporting year. Employee furnishing and IRS filing deadlines are separate. Federal rules may allow an employer to use an alternative furnishing method by posting a clear, conspicuous website notice and providing a Form 1095-C promptly when requested. State reporting and furnishing rules may differ.
E-file: Employers filing 10 or more information returns in the aggregate — including Forms W-2, 1099, and ACA returns — generally must file electronically unless they receive a hardship waiver.
Non-filers: Letter 5699 asks why an employer that may be an ALE did not file. A prompt review of workforce counts, controlled-group status, and prior filings is important.
Penalties: Letter 226-J is an initial proposed employer shared-responsibility payment, not a final bill. It may arise when IRS data indicates that a full-time employee received a premium tax credit. Employers generally have at least 90 days to respond, but should always follow the response date and instructions stated in the letter.
Broker Conversation
Bring this refresher to the client’s HR team, not only the decision maker. Offer to rerun the ALE test, review the employer’s measurement approach, and ask one simple question: “Have you received any IRS letters about the ACA?”
Early review of IRS correspondence can make a meaningful difference. Many issues can be addressed when the employer promptly reviews the letter, validates its data, and responds by the stated deadline.
Client Action List
- Rerun the ALE test using 2026 data for 2027, including all controlled-group and affiliated-service-group entities.
- Model 2027 employee contributions using the 10.22% affordability percentage.
- Confirm which affordability safe harbor the employer will use.
- Document the measurement method in writing and explain it clearly to employees.
- Train hiring managers, HR, payroll, and benefits teams on the full-time versus variable-hour determination at hire.
- Confirm Form 1094-C and 1095-C filing responsibilities, electronic-filing status, and employee-furnishing procedures.
- Ask about any Letter 5699 or Letter 226-J and respond by the deadline shown on the notice.
This article is for general educational purposes only and is not legal or tax advice. Employers should consult their own counsel about their specific facts.