Full-Time Equivalent Employees: How to Calculate Correctly
When it comes to Affordable Care Act (ACA) compliance, one of the foundational elements employers need to master is accurately calculating Full-Time Equivalent (FTE) employees. This calculation is critical because it determines whether your organization is an Applicable Large Employer (ALE) and thus subject to ACA regulations such as offering health insurance and filing accurate ACA reports with the IRS.
In this detailed guide, we’ll cover what FTE means, why it matters, how to calculate it correctly, and how ACA-Track can simplify ACA compliance with its powerful tools and services.
What is a Full-Time Equivalent Employee?
Under the ACA, a full-time employee is defined as someone who works on average at least 30 hours per week or 130 hours per month. However, most companies have a mix of full-time and part-time employees. To account for this, the ACA uses a Full-Time Equivalent (FTE) calculation — a method to convert the hours worked by part-time or variable-hour employees into an equivalent number of full-time employees.
Why does this matter?
Employers with 50 or more full-time employees (including FTEs) are considered Applicable Large Employers (ALEs). ALEs are subject to employer shared responsibility provisions, meaning they must offer affordable health coverage meeting minimum value standards or face potential penalties.
How to Calculate Full-Time Equivalent Employees Correctly
Step 1: Count Full-Time Employees
Count the number of employees who worked 130 or more hours in the month. These are your full-time employees.
Step 2: Calculate Total Hours for Non-Full-Time Employees
Sum the actual hours worked by all non-full-time employees during the month. Important: You can only count up to 120 hours per employee per month when calculating FTEs for part-time employees. This cap prevents inflating FTE counts.
Step 3: Divide by 120
Divide the total part-time hours (capped at 120 per employee) by 120 to get the number of full-time equivalent employees.
Step 4: Add Full-Time and FTE Counts
Add the number of full-time employees (Step 1) to the FTE number (Step 3) to get your total full-time equivalent employees for the month.
Example Calculation
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Full-time employees: 40 (each worked at least 130 hours/month)
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Part-time employees: 20 (each worked 60 hours/month)
Step 1: Full-time = 40
Step 2: Part-time total hours = 20 employees × 60 hours = 1200 hours
Step 3: 1200 hours ÷ 120 = 10 FTEs
Step 4: 40 full-time + 10 FTE = 50 full-time equivalent employees
This employer meets the ALE threshold and must comply with ACA regulations.
Why Tracking Hours of Part-Time and Variable Hour Employees Is Crucial
Without accurately tracking part-time and variable-hour employees’ hours, you risk misclassifying employees’ eligibility for health coverage. If an employee works enough hours to be considered full-time but is not offered insurance, your company may be subject to ACA penalties.
Employers must monitor actual hours worked to:
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Determine when part-time or variable hour employees cross the full-time threshold.
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Offer coverage within the required timeframes.
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Maintain compliance with ACA reporting requirements.
Challenges of Manual Tracking and ACA Compliance
Collecting hours from multiple systems—time clocks, manual timesheets, payroll, or mobile device entries—can be complicated and prone to error. Additionally, compiling and reconciling data across departments like HR, payroll, benefits, and finance is time-consuming.
The IRS requires precise reporting on forms 1094-C and 1095-C, including details about hours worked, coverage offers, waivers, and eligibility periods. Non-compliance can lead to hefty penalties and IRS 226-J penalty letters.
How ACA-Track Simplifies FTE Calculation and ACA Compliance
ACA-Track is a proven ACA compliance solution designed to take the headache out of tracking employee hours, calculating FTEs, and filing accurate ACA reports.
Key Features That Help with FTE Calculations:
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Collect Employee Hours Worked: Gathers actual hours from multiple sources—timekeeping systems, manual entries, mobile devices, and payroll.
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Variable Hour Tracking: Monitors part-time and variable hour employees to determine eligibility and trigger alerts when thresholds are crossed.
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Customizable Measurement Periods: Configurable settings allow employers to set administrative, measurement, and stability periods tailored to their needs.
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Automatic FTE Calculations: ACA-Track calculates weekly and monthly FTEs accurately, respecting the 120-hour cap per part-time employee.
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User-Friendly Dashboards: Visualize and analyze employee ACA status with filters for full-time/part-time, location, and other criteria.
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Alerts and Notifications: Receive advance alerts when employees near eligibility thresholds, enabling proactive benefits offering.
Compliance Made Easy:
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Generates and electronically files IRS-compliant 1094-C and 1095-C forms.
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Conducts monthly line code audits to ensure accuracy.
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Helps identify and fix ACA reporting errors before IRS submission.
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Provides secure cloud storage for all ACA data to facilitate IRS audits or state healthcare exchange requests.
Why Accurate FTE Calculation Matters for Your Business
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Avoid Penalties: Correct FTE calculation ensures you correctly identify ALE status and offer required coverage to avoid fines.
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Streamline Reporting: Simplifies complex ACA reporting requirements, saving time and reducing errors.
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Employee Satisfaction: Offering timely coverage increases employee morale and retention.
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Peace of Mind: ACA-Track’s comprehensive approach reduces compliance risk.
Conclusion
Accurate calculation of Full-Time Equivalent Employees is the cornerstone of ACA compliance. Employers must diligently track employee hours, especially for part-time and variable-hour workers, to avoid costly penalties and ensure compliance.
To take the guesswork out of ACA compliance and FTE calculations, consider partnering with a trusted solution like ACA-Track. Their integrated, data-driven platform offers customizable tracking, reporting, and support tailored to your organization’s unique needs—helping you stay confident and compliant every step of the way.
Explore ACA-Track today to see how easy ACA compliance can be with the right technology and expertise backing you.
Visit: https://aca-track.com/
