How to Calculate FTEs
In our previous blog, we identified the Applicable Large Employer (ALE) in a 3 step process, as defined by the regulations of the employer mandate under the Affordable Care Act (ACA). In the first step, we identified the employer as an employer that employs on average at least 50 full-time employees (or their equivalent). In the second step, we identified the full-time employee or their equivalent (FTE) as an employee who provides on average at least 30 hours of service a week. In this third step, we will discuss how to calculate the number of full-time employees or their equivalent to complete the process of correctly defining an ALE under the employer mandate regulations.
The last step in defining an ALE will be broken up into two posts. In this post, we will calculate the number of full-time equivalents (FTEs) and in a follow-up post we will go through the steps on how to add the total number of full-time equivalents (FTEs) to the total number of full-time employees. Though full-time employees and FTEs sound similar, do not confuse the two. They are not interchangeable. FTEs are employees who do not work full-time that are added together to equal full-time employees. Before you can calculate the total number of full-time employees to determine if your company is an ALE under the employer mandate, first you have to learn to calculate full-time equivalents (FTEs).
Section 4980H of the Internal Revenue code, “that the employer is required to calculate the number of FTEs it employed during the preceding calendar year and count each such FTE as one FT employee for that year.”
The number of FTEs for each calendar month of the preceding year is determined by:
- Calculate the aggregate number of hours of service (but not more than 120 hours of service for an employee) for all employees who were not full-time employees for that month.
- Divide the total hours of service in step (1) by 120.
This will result in the number of FTEs for the calendar month.
For example, if the total hours of service of the employees that do not work full-time equals 1,200 then you should divide the total hours of service by 120. The result will equal the total number of FTEs.
Total hours of service/120= FTEs
1,200/120= 10 FTEs
In this example, the total number of FTEs is 10. Note, this is not the total number of full-time employees only their full-time equivalent. In the next post we will add the next step in determining the total number of full-time employees and their equivalent. If you have any questions concerning this post, please feel free to visit us or give us a call. We will gladly guide you through it personally.