Effective January 1, 2014 employers with more than 50 Full Time (FT) employees must offer employees and their dependents affordable health coverage with a minimum value or face possible penalties. Minimum value means health coverage premiums must be lower than 9.5% of a FT employee’s household income. Employers with more than 50 FT employees are considered an Applicable Large Employer. In this blog we are looking at the requirements to determine an employer’s FT employee count and Full Time Equivalent (FTE) employee counts to determine if they are considered an Applicable Large Employer and will be required to provide health coverage.
First, how to determine an employer’s FT employee count:
According to the Affordable Health Care Act, an employee is considered FT if they work 30 hours or more in a week. Proposed regulations would provide that 130 hours of service in a calendar month would be treated as the monthly equivalent of at least 30 hours of service per week. (52 weeks x 30hrs/12months = 130)
As under existing Labor Regulations, an employee’s hours of service would include the following: (1) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and (2) each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.
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Second, how to calculate hours of service:
Calculate hours of service for hourly employees by calculating actual hours of service. The calculation of non-hourly employees or employees who are salaried can be done in three different methods. (1) Counting actual hours of service. (2) Using days worked equivalency method whereby the employee is credited with eight hours of service for each day. (3) Using a weeks-worked equivalency of 40 hours of service per week for each week worked. Although an employer would be required to use one of these methods, an employer need not use the same method for all salaried employees, but may apply different methods for different classifications of salaried employees.
Determining if your company is an Applicable Large Employer is based upon the sum of Full-Time Employees and the number of Full Time Equivalent employees. Determining your FT employee is as described above, 30 hours a week or 130 hours a month. Determining Full Time equivalents is a slightly different process: An employer is required to calculate the number of FTEs it employed during the preceding year and count each FTE as one FT employee for that year. (Since this will begin in 2014, companies will have to calculate the FTE and FT status for 2013.) All employees, including seasonal employees who were not full-time for any month in the preceding calendar year are included in calculating the employer’s FTEs for that month. FTEs are determined by using the following steps:
(1) Calculate the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not full-time employees for that month.
(2) Divide the total hours of service in step (1) by 120. This is the number of FTEs for the calendar month.
Determining Full Time and Full Time Equivalent Status
In determining the number of FTEs for each calendar month, fractions would be taken into account. However, after adding the 12 monthly full-time employee and FTE totals, and dividing by 12, all fractions would be disregarded. For example:
In a calendar month employees who are not full-time employees worked a total of 1,260 hours. After dividing 1,260 by 120, there would be 10.5 FTEs for that month. However, after adding the 12 monthly full-time employee and FTE totals, and dividing by 12 all fractions would be disregarded. For example: You have 49.9 FT employees for the preceding calendar year it would be rounded down to 49 FT employees.
Six easy steps to follow to calculate the number of FT employees:
1) Calculate the number of FT employees (including seasonal employees) for each calendar month in the preceding year. (FT = 30 hours a week or 130 hours a month)
2) Calculate the number of Full Time Equivalents (FTEs) (including seasonal employees) for each calendar month in the preceding calendar year. As described above.
3) Add the number of FT employees and FTEs calculated in steps 1 and 2 for each of the 12 months in the preceding calendar year.
4) Add up the 12 monthly numbers in step 3 and divide the sum by 12. This is the average number of the employer’s FT employees for the preceding calendar year.
5) If the number of FT employees in step 4 is less than 50, the employer is not an applicable large employer for the current calendar year.
6) If the number of FT employees in step 4 is 50 or more, determined whether the seasonal employee exception, applies. If the seasonal employee exception applies, the employer is not an applicable large employer for the current calendar year. If the seasonal exception does not apply, the employer is an applicable large employer for the current year.
It is our recommendation that if you do not currently have a reliable time keeping process that you get one and start using it, as you will be required to keep and calculate employee hours beginning January 31, 2013.