(Part 3 of a 3-part blog series)

Legislation and Its Impact on Your Job SearchIf you employ more than 50 full-time equivalent employees (FTE), your company is considered “large” and the employer mandate section of the Affordable Care Act is applicable.

An FTE is a person who has worked (on average) 30 hours per week during the previous calendar year. This includes all hours for which the employee was paid, whether or not the employee actually worked those hours (i.e. paid vacation, paid leave, etc.)

The IRS has stated that newly hired employees who

  • are reasonably expected to work annually at least 30 hours per week
  • do actually work 30 hours per week during the first 3 months of employment

must be offered coverage under the employer’s group health plan at the end of an initial 90 days waiting period, or payment of a penalty will be required.

Full-time and part-time employees

Generally speaking, to determine FTE applicability you must:   

  1. Determine the number of full-time employees who worked at least 30 hours per week for each month in the previous calendar year (i.e. this year – 2013).  Add those monthly totals together.
  2. Determine the number full-time equivalent employees among your part-time workforce by adding the number of hours worked in the month and dividing by 120.  Add those monthly totals together.
  3. Add the monthly totals from step #1 and step #2 and divide by 12.

If, after step #3, the result is 50 or more, the “pay” or “play” mandates of the Affordable Care Act apply to your company.

Seasonal and Variable Hour Employees

If you manage a staff of seasonal and variable hour employees, the determination of FTE employment is different and more complex.  Large employers must track each employee’s monthly status as full-time or part-time to classify them properly as full-time equivalent employees.

For newly hired employees…

The IRS has outlined a “safe harbor” method for identifying full-time equivalent employees.  This method leverages three concepts:

  • Initial measurement period – a look back period used to determine an employee’s full-time status.
  • Initial administrative period– a period of time between initial measurement and initial stability periods used to identify affected employees, offer coverage and administer enrollments.
  • Initial stability period – a future period after the initial measurement period and the initial administrative period during which the employee is treated as full-time or part-time.

In general, employees may be evaluated for FTE status over a look-back “initial measurement period” of between 3-12 months.  During this time, employers are allowed to average the hours worked by seasonal and variable hour employees to see who averaged at least 30 hours per week (or 130 hours per month).  The resulting classification as full-time (or part-time) may be locked in for a subsequent “stability period”.

For continuing seasonal and variable-hour employees…

The process of determining FTE status for continuing employees is similar to the process for newly hired employees, but with slight modifications to the measurement, administrative and stability periods.

  • Standard measurement period – same as initial measurement period (between 3-12 months) but this period can be modified slightly in order to better align with payroll periods.
  • Standard administrative period – same as initial administrative period but is limited to 90 days.
  • Standard stability period – must be the same duration as the employee’s initial stability period and cannot be longer that the standard measurement period.

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