Two different rules use a number near 50, and they are easy to mix up. One is the IRS test for applicable large employer status under the Affordable Care Act. The other is the state insurance test that decides whether a fully insured policy is issued in the small-group or the large-group market. They are not the same calculation, and they do not always produce the same answer.
Ares Benefit Group advises businesses of every size, from 2 employees to 500+. Small-business coverage remains the core of the practice. This page is for mid-size firms, especially companies in the 51–200 range on our proposal form. Companies in the 201+ range use the same rules; see large-group health insurance and employee benefits consulting. This is a briefing, not a status determination and not legal, tax, or insurance advice. Rules vary by state and can change.
Two tests that both use a number near 50
Applicable large employer status (federal tax rules). The IRS decides applicable large employer — ALE — status year by year, using the prior calendar year. You are an ALE for the current year if you averaged at least 50 full-time employees, including full-time equivalents, during the prior year. This federal test governs the employer shared-responsibility rules and ALE information reporting. It does not change from state to state, though related companies are combined under federal aggregation rules.
The small-group versus large-group insurance market (state insurance rules). This test decides the market in which a fully insured group policy is issued. Under the Protecting Affordable Coverage for Employees Act, a small employer is generally an employer with an average of one to 50 employees during the preceding calendar year, and a state may extend that definition to one to 100 employees. In a default state, a fully insured plan for 51 or more employees is typically a large-group policy. In an expansion state, a company with 51 to 100 employees may still buy a small-group policy.
You can be an applicable large employer and still be in the small-group insurance market, or the reverse. Part-time hours and related companies affect the IRS math. We will run both tests against your roster.
The ALE test, in practical terms
The IRS publishes the method, and Do employers under 50 have to offer health insurance? walks through it in detail. In short: a full-time employee for a month averages at least 30 hours of service a week, or at least 130 hours in the month. Full-time equivalents convert non-full-time hours by adding those hours for the month (capping each person at 120) and dividing by 120. Add the monthly totals, divide by 12, and drop any fraction. If the result is 50 or more, you are an ALE for the next calendar year.
Part-time hours can push a company over the line even when fewer than 50 people work 30 hours a week. Related companies under Internal Revenue Code § 414 are generally combined. A seasonal-worker exception and a new-employer rule are covered on the requirement page and in the IRS sources below.
If you are an ALE, the shared-responsibility rules and Forms 1094-C and 1095-C generally apply for that year. If you are not, those particular duties do not apply for that year, though you may still offer coverage and may have other filings. Crossing the line is a reason to review the design, the contribution, and the reporting calendar before the year begins — not a reason to drop coverage.
How states define the small-group market
Confirm the rule where the policy would be issued; legislatures do change these definitions. As of this writing, official sources support the following.
Federal default. The PACE Act amended the Affordable Care Act and the Public Health Service Act so that a small employer is generally an employer with one to 50 employees, with a state option to expand that definition to one to 100. CMS summarizes the rule in its market-rating materials. HealthCare.gov’s SHOP page starts at one to 50 full-time equivalents and notes that some states may make SHOP available up to 100 employees.
Florida. This firm is based in Tampa. For a nongrandfathered plan, Florida Statutes § 627.6699 defines a small employer as an employer with its principal place of business in this state that employed an average of at least one but not more than 50 employees on business days during the preceding calendar year and employs at least one employee on the first day of the plan year. A fully insured Florida group of 51 or more is therefore generally a large-group policy.
California. For plan years commencing on or after January 1, 2016, California law defines a small employer, in relevant part, as an employer that, on at least 50 percent of its working days during the preceding calendar quarter or preceding calendar year, employed at least one but no more than 100 employees, the majority of whom were employed in the state. The California Department of Insurance describes this as coverage for 1 to 100 employees.
New York. The Department of Financial Services states that, under New York law and the Affordable Care Act, small group is 1 to 100 employees as of January 1, 2016, and that non-grandfathered groups in that range renewing on or after that date must be issued small-group coverage.
Vermont. Under 33 V.S.A. § 1811, a small employer is an entity that employed an average of not more than 100 employees on working days during the preceding calendar year, counted using the method in 26 U.S.C. § 4980H(c)(2).
Colorado — a 2026 change. Colorado previously treated small employers as those with up to 100 employees, and CMS’s older state-rating table still lists Colorado as an expansion state. That is no longer the current rule. Senate Bill 24-073, effective January 1, 2026, amended Colorado law so that a small employer employed an average of at least one but not more than 50 eligible employees during the preceding calendar year. The Division of Insurance confirmed that its required premium-impact review did not repeal the change, and that employers with 51 to 100 employees that already had a small-group plan may have a transition period of up to five years, on the terms of the statute. A Colorado company in that band should have the current plan and those transition rules read before anyone assumes the market.
Most other states follow the federal default of 50. For a multi-state roster, see benefits for a multi-state workforce.
What changes when you become an ALE
In general terms, an applicable large employer may offer affordable minimum essential coverage that provides minimum value to full-time employees and their dependents, or it may owe an employer shared-responsibility payment to the IRS. Minimum value generally means the plan is designed to cover at least 60 percent of the total allowed cost of benefits expected under the plan. Affordability can be tested using IRS methods, including safe harbors based on Form W-2 wages, rate of pay, or the federal poverty line.
ALEs also have information-reporting duties on Forms 1094-C and 1095-C. A QSEHRA is not available to an applicable large employer. An ICHRA remains available to employers of any size, including ALEs, if the design is done carefully. SHOP coverage is generally for employers with one to 50 full-time equivalents, with a state-level exception in states that extend SHOP to 100. HealthCare.gov notes that a business already enrolled in SHOP can renew if the group later grows above 50 employees.
Federal COBRA rules generally already apply once an employer has 20 or more employees. ERISA plan documents and, for some plans as headcount grows, Form 5500 filing, should be inventoried rather than assumed. Employee benefits consulting describes how we help organize this work. Formal tax determinations belong with your tax advisor.
Coverage structures that remain on the table
Becoming mid-size, or becoming an ALE, does not force a single product. On the same census we will compare a fully insured plan in the market that actually applies in your state — still small-group in some states up to 100 employees, otherwise large-group — a level-funded plan when a contract can be issued, a self-funded plan with stop-loss insurance when that design can be built, and an ICHRA, including as a path for a firm leaving a QSEHRA.
A fully insured plan is the right answer for many companies at this size. The other structures can be a fit when the census, the state rules, and the employer’s tolerance for plan-sponsor work line up. We will not claim that one of them costs less. If you already have a broker and want a structured comparison, see a benefits RFP or changing your benefits broker of record.
Our agents are licensed in all 50 states. The firm is based in Tampa and works with Tampa Bay employers as well as companies with people in other states.
Talk with an advisor: (813) 540-1299Frequently asked questions
If we have 55 employees, are we automatically a large group?
Not automatically. In Florida and in other states that use the one-to-50 default, a fully insured plan for 55 employees is typically a large-group policy. In California, New York, and Vermont, a group of 55 may still be in the small-group market. Colorado’s small-employer definition changed to 50 as of January 1, 2026, with a transition for some existing groups. Separately, the IRS ALE test uses full-time employees including full-time equivalents, so 55 W-2 names is not the same as an ALE determination.
Do we have to offer coverage once we are an applicable large employer?
An ALE may offer affordable minimum essential coverage that provides minimum value to full-time employees and their dependents, or it may owe an employer shared-responsibility payment to the IRS. That is the federal rule. This page does not calculate a payment and is not tax advice.
Can we keep our QSEHRA after we become an ALE?
No. A QSEHRA is available only to an employer that is not an applicable large employer and that does not offer a group health plan. An ICHRA, a group plan, or a level-funded or self-funded design should be reviewed for the following year.
Does SHOP still apply at this size?
SHOP is generally for employers with one to 50 full-time equivalents. Some states may make SHOP available up to 100 employees. HealthCare.gov also states that a business already enrolled in SHOP can renew if the group later grows above 50. We will confirm current eligibility in your state rather than assume it.
Is mid-size the same as 51–100 employees?
Not in our use of the word. This page focuses on the 50-FTE ALE line and the 50-versus-100 insurance-market line, which matter most for firms around 51 to 100 employees, and it is written for the broader 51–200 range on our proposal form. Companies with 201 or more employees use the same federal ALE rules and the large-group market in most states.
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