Under the Affordable Care Act, you can’t rely on a head count. You need to determine an average each month throughout the year for purposes to know whether you’re subject to the employer mandate. This means counting full-time employees and figuring the number of full-time equivalent employees (FTEs). If the average monthly number is 50 or more, you are subject to the employer mandate (those with 50 to 99 employees become subject to the mandate on January 1, 2016).
Determining full-time employees: A full-time employee is someone who is employed on average, per month, at least 30 hours of service per week, or at least 130 hours of service in a calendar month. Note: Congress has tried to change this to 40 hours per week (the normal full-time schedule), but has thus far failed to so do.
Determining FTEs: Add the hours of part-timers (but no more than 120 per worker) and divide by 120. If this results in a fraction, round up to the next whole number. For example, Company X has 15 part-time employees for each calendar month during 2016, each of whom has 60 hours of service per month. When combined, the hours of service of the part-time employees for a month totals 900 [15 x 60 = 900]. Dividing the combined hours of service of the part-time employees by 120 equals 7.5 [900 / 120 = 7.5]. This number, 7.5, represents the number of Company X’s full-time-equivalent employees for each month during 2016. Since 7.5 is not a whole number, round up to 8, which becomes the number of X’s FTEs.
Aggregation: If you own more than one business, you may have to count employees in all of them for purposes of the employer mandate. The same aggregation rule for qualified retirement plans applies for the employer mandate.
Counting period: Usually you use the prior 12 months to determine the number of employees. Under a transition rule for 2015, an employer can use any consecutive six-month period during 2014 to measure its workforce size. New employers (those not in business at any time in the prior year) are subject to the employer mandate only if it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees (including FTEs) on business days during the current calendar year.
Small employer health insurance credit: Even if you’re not subject to the mandate, you still need to make a similar (but not the same) type of computation for employees to know whether you qualify for this tax credit. In this case you divide the annual hours for part-timers by 2080 to find the number of FTEs. What’s more, if you don’t have a whole number, you round down in this case. To complicate things further, you can use the actual hours worked, or an alternate way of figuring hours (days-worked equivalency or weeks-worked equivalency).
The credit applies if you pay more than half the premiums for workers who have average wages under a set limit and you buy the coverage through a SHOP. The full credit applies only if you have no more than 10 employees (full time and FTEs); it phases out completely when your staff exceeds 24.
Professional advice: Work with a CPA or other advisor to track your employee numbers.
