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Nonstop Wellness Blog

High-quality benefits for nonprofits.

ACA Employer Mandate:Employment Questions (part 1)

In the midst of looming ACA reporting deadlines and the fast approaching open enrollment period (leading to thoughts around planning for employee health in the 2016 tax year), questions around what constitutes full-time equivalency abound.  Determining full-time versus part-time employees can prove maddening especially when variable and seasonal workers enter the fray. In addition, measurement periods play a key role in establishing full or part-time status, and therefore must be utilized properly to ensure compliancy.

One of the first key things to know is how to determine full-time equivalency (FTE). Full time equivalency is used to determine if an employer can be considered an ALE.  The monthly hours of all part-time employees (PT) are totaled and then divided by 120.  If the combination of that resulting number, plus the number of full-time employees (FT) equals 50+, then the organization is considered an ALE and must comply with ACA mandates for group health coverage*.

For example, let’s say company ABC employs 25 FT employees (those working 30+ hours/week or 130+ hours/month) and 40 PT workers all of whom work an average of 60 hours per month. 

  • With a base of 25 FT employees already established, company ABC must now determine if the 40 PT workers total up to another 25 FTE employees.
  • Company ABC multiplies 40 (number of PT employees) by 60 (individual monthly hours for each PT) for a total of 2400 hours worked per month by PT employees.
  • The 2400 hours are then divided by 120, equaling 20 FTE employees.
  • Twenty FTE plus 25 FT employees equals 45 FTE, meaning company ABC falls below the 50 FTE mandated by the ACA and therefore is not subject to the employer mandate.
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In a second example, company XYZ employs 10 FT employees and 100 PT employees. The PT employees all work an average of 80 hours per month.

  • With a base of 10 FT employees already established, company XYZ must now determine if the 100 PT workers total up to another 40 FTE employees.
  • Company XYZ multiplies 100 (number of PT employees) by 80 (individual monthly hours for each PT) for a total of 8000 hours worked per month by PT employees.
  • The 8000 hours are then divided by 120, equaling 66.7 FTE employees.
  • Sixty-seven FTE plus 10 FT employees equals 77 FTE, meaning company XYZ falls above the 50 FTE mandated by the ACA and therefore is subject to the employer mandate.

In subsequent blog posts, we will break this down even further by looking at the differences between full-time, full-time equivalent, part-time, variable, and seasonal workers; how to count hours; the types of measurement periods and proper times to use them; and how leave-time and COBRA can affect employment status.

* For the 2015 tax year, the employer mandate only applies to ALEs with 100+ FTE employees.  Beginning in the 2016 tax year, the employer mandate will apply to all ALEs, meaning those organizations with 50+ FTE employees.

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The information and materials herein are provided for general information purposes only and are not intended to constitute legal or other advice or opinions on any specific matters and are not intended to replace the advice of a qualified attorney, plan provider or other professional advisor. This information has been taken from sources believed to be reliable, but there is no guarantee as to its accuracy. In accordance with IRS Circular 230, this communication is not intended or written to be used, and cannot be used as or considered a ‘covered opinion’ or other written tax advice and should not be relied upon for any purpose other than its intended purpose