Q: How are full-time and full-time-equivalent employees calculated?

A: A large employer potentially subject to the employer mandate penalty is an employer with more than fifty full-time-equivalent employees during the preceding calendar year.

Additionally, an employer who is part of a group of employers treated as a single employer under Code Section 414 (b), (c), (m), or (o) (including employees of a controlled group of corporations, employees of partnerships, proprietorships, etc., which are under common control, and employees of an affiliated service group) is treated as a single employer.[1] When a mandate penalty applies, it is to be paid ratably by members of the group.[2] For employers not in existence throughout the preceding calendar year, the determination of large employer is based on the average number of employees a firm is reasonably expected to employ on business days in the current calendar year.[3] Any reference to an employer includes a reference to any predecessor of that employer.[4]

The statutes use the term “full-time employee” in the definition of large employer, but then expand on the definition to include both full- and part-time workers.[5] Full-time employees are those working thirty or more hours per week.[6] The number of full-time employees excludes any full-time seasonal employees[7] who work for less than 120 days during the year.[8] The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.[9] In addition, an employer will not be considered a large employer if its number of full-time-equivalent employees exceeded 50 for 120 days or less or the employees in excess of 50 employed during the 120-day period were seasonal workers.[10]

Example: A firm has 35 full-time employees who work 30 or more hours per week. In addition, the firm has 20 part-time employees who all work 24 hours per week (96 hours per month). These part-time employees’ hours would be treated as equivalent to 16 full-time employees, based on the following calculation:

20 employees x 96 hours = 1920

1920 / 120 = 16

[1].         IRC Sec. 4980H(c)(2)(C)(i).

[2].         IRC Sec. 4980H(c)(2)(D)(ii).

[3].         IRC Sec. 4980H(c)(2)(C)(ii).

[4].         IRC Sec. 4980H(c)(2)(C)(iii).

[5].         IRC Sec. 4980H(c)(2).

[6].         IRC Sec. 4980H(c)(4).

[7].         The term ‘‘seasonal worker’’ means a worker who performs labor or services on a seasonal basis as defined by the Secretary of Labor, including workers covered by Section 500.20(s)(1) of title 29, Code of Federal Regulations and retail workers employed exclusively during holiday seasons. IRC Sec. 4980H(c)(2)(B)(ii).

[8].         IRC Sec. 4980H(c)(2)(B).

[9].         IRC Sec. 4980H(c)(2)(E).

[10].      IRC Sec. 4980H(c)(2)(B).