ACA Measurement Periods and Hours of Service
Applicable large employer status, and every full-time determination that follows from it, comes down to counting hours of service - a defined term that includes hours paid for work and hours paid when no work was performed.
Most guidance stops at "30 hours a week." The mechanics underneath are where the errors live.
Are you an applicable large employer?
An employer is an ALE if it had at least 50 full-time employees, including full-time equivalents, on average during the prior year.
Full-time means an average of at least 30 hours of service per week, or at least 130 hours of service in a calendar month.
Calculating full-time equivalents - two steps:
- Combine the hours of service of all non-full-time employees for the month, counting no more than 120 hours per employee
- Divide the total by 120
The seasonal worker exception: you are not an ALE if your workforce exceeded 50 for 120 days or fewer during the year and the employees above 50 during that period were seasonal workers.
Aggregation: companies with common ownership or otherwise related are generally combined and treated as a single employer for the ALE determination.
One rule that catches people: the look-back measurement method may not be used to determine ALE status. ALE status is its own calculation on the prior calendar year.
What counts as an hour of service
Each hour for which an employee is paid, or entitled to payment, for performing duties - plus each hour paid for a period during which no duties were performed due to vacation, holiday, illness, incapacity including disability, layoff, jury duty, military duty or leave of absence.
Paid leave counts. This is the most common undercount.
For non-hourly employees, three methods are permitted:
- Actual hours from records of hours worked and hours paid
- Days-worked equivalency - 8 hours per day
- Weeks-worked equivalency - 40 hours per week
With a limit: you may not use the day or week equivalencies if the result substantially understates an employee's hours of service. A salaried employee routinely working 55 hours cannot be credited with 40.
The look-back measurement method
Three interlocking periods:
| Period | Permitted length |
|---|---|
| Standard measurement period | 3 to 12 consecutive months |
| Administrative period | Maximum 90 days |
| Stability period - employee IS full-time | At least 6 consecutive months, and no shorter than the measurement period |
| Stability period - employee is NOT full-time | No longer than the measurement period |
The asymmetry is the whole design. A full-time result locks in for at least six months. A not-full-time result cannot be locked in for longer than you measured. You cannot measure for three months and then treat someone as part-time for a year.
The common configuration is a 12-month measurement period, a 90-day administrative period, and a 12-month stability period.
For new variable-hour, seasonal and part-time employees, an initial measurement period of 3 to 12 consecutive months applies - with a hard outer limit: the initial measurement period and administrative period together cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's start date.
The monthly measurement method
The alternative: determine full-time status month by month, based on whether the employee had at least 130 hours of service in that month. Simpler, but with no stability period, status can flip monthly.
Affordability safe harbors
All three compare the employee's required contribution for the lowest-cost self-only minimum value coverage against a base:
| Safe harbor | Base |
|---|---|
| Form W-2 | The employee's Box 1 wages for the calendar year |
| Rate of pay | Hourly: 130 hours × the lower hourly rate. Salaried: monthly salary as of the first day of the coverage period |
| Federal poverty line | The single-person federal poverty line ÷ 12 |
The affordability percentage:
| Plan year | Percentage |
|---|---|
| 2025 | 9.02% |
| 2026 | 9.96% |
That jump is unusually large, and it's not ordinary indexing - a new measurement methodology took effect for 2026 incorporating individual-market premiums alongside employer-sponsored data. Employers who set 2026 contributions off a trend line will be surprised.
Penalties
| Calendar year | No offer (per full-time employee, less 30) | Unaffordable or no minimum value (per affected employee) |
|---|---|---|
| 2025 | $2,900 | $4,350 |
| 2026 | $3,340 | $5,010 |
| 2027 | $3,780 | $5,670 |
Assessed monthly at one-twelfth of the annual amount. Note the trajectory - the no-offer penalty rises roughly 15% into 2026 and another 13% into 2027.
Reporting deadlines
For tax year 2025 forms:
| Deadline | |
|---|---|
| Furnish Form 1095-C to employees | March 2, 2026 (January 31 plus the automatic 30-day extension, now permanent) |
| File with the IRS on paper | March 2, 2026 |
| File with the IRS electronically | March 31, 2026 |
Electronic filing is required at 10 or more information returns, aggregated across types. Hardship waiver on Form 8508.
The alternative furnishing method. Rather than mailing automatically, an employer may post a clear, conspicuous and accessible notice on its website, retained through October 15, including an email address, mailing address and phone number for requests - then furnish the statement within 30 days of a request.
The coding, briefly
Line 14 reports what was offered, for every month January through December, even for months the person wasn't full-time. Codes run 1A through 1U, with 1A a qualifying offer, 1E an offer to employee, spouse and dependents, 1H no offer, and 1L-1U covering individual coverage HRA arrangements - split by who is covered and whether affordability is measured at the employee's residence or employment site ZIP code.
Line 15 reports the required contribution for the lowest-cost self-only minimum value option - left blank for any month coded 1A.
Line 16 reports why no penalty applies: 2A not employed, 2B not full-time, 2C enrolled, 2D limited non-assessment period, 2E multiemployer relief, and 2F, 2G, 2H for the W-2, federal poverty line and rate of pay safe harbors respectively.
Frequently asked questions
Does paid leave count as hours of service?
Yes. Hours paid when no duties were performed - vacation, holiday, illness, disability, layoff, jury duty, military duty, leave - all count.
How do we count full-time equivalents?
Add non-full-time employees' monthly hours, capping each at 120, and divide by 120.
Can we use the look-back method for ALE status?
No. ALE status is determined on the prior calendar year separately.
Can we credit a salaried employee 40 hours a week?
Only if it doesn't substantially understate actual hours.
How long can a stability period be?
For a full-time result, at least 6 months and no shorter than the measurement period. For a not-full-time result, no longer than the measurement period.
What's the 2026 affordability percentage?
9.96%, up from 9.02% - reflecting a methodology change, not just indexing.
When are 1095-Cs due to employees?
March 2, 2026 for tax year 2025 - January 31 plus a now-permanent 30-day extension.
This guide is general information about reporting requirements, not legal advice. Verify current deadlines, thresholds and penalty amounts against the issuing agency before you file.