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ACA Employer Mandate:Employment Questions (part 2)

As part of our series around ACA employment questions – namely how to determine full-time equivalency (FTE) – today we continue with a look at the various types of employment, how/if they play a role in FTE, and calculating the number of hours worked for each employee.

When determining employment status, calculation of hours worked can result from actual hours worked, or days/weeks-worked equivalencies (see below).  According to the IRS, an hour of service means “each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer, and each hour for which an employee is paid, or entitled to payment, for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.”

In addition, employment status also relies on measurement periods called “look back” periods, which will be covered in more detail in our next blog post.

Types of Employment

  • Full time (FT): A full-time employee is one who works an average of 30 hours per week or 130 hours per month over at least a 120-day “look back” measurement period (but up to 12 months).
  • Variable-hour (VH): A variable hour employee fluctuates below and above 30 hours per week. To determine full-time or part-time status, employers need to use a 3-12 month “look back” period to see if the employee worked an average of 30 hours per week over that time.
  • Part-time (PT): A part-time employee works less than an average of 30 hours per week or 130 hours per month over at least a 120-day “look back” period (but up to 12 months).
  • Seasonal: Seasonal employees are excluded from full-time or full-time equivalent status only if they work less than 120 days or they only work during seasonal timeframes (i.e. the Winter holidays). Otherwise, seasonal employees are subject to the same rules as variable-hour employees (see above).

Counting Hours

When counting hours for all employees, one of three methods must be used:

  • Actual hours worked*: Each hour of paid and required employment is credited towards the employee
  • Days worked equivalency: Eight hours per required day of employment is credited toward the employee
  • Weeks worked equivalency: Forty hours per required week of employment is credited toward the employee

In our next blog post, we will look more at the different types of measurement periods and examples of how to determine employment status using them.

* For hourly employees, an employer must use the actual hours worked method; for non-hourly employees any of the three methods may be used.

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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 purp