Full-time equivalent (FTE)

Businesses that have been around since the inception of the Affordable Care Act (ACA) know the importance of complying with the law. Newer companies may not have the ACA on their radar, but they should if they anticipate growth. Why? The law takes effect based on how many full-time and full-time equivalent employees (FTE) a company has. Calculating this number is one of the first steps in understanding whether or not a business is subject to and should be concerned with ACA requirements.

What is FTE?

FTE is a designation given to a combination of employees who individually do not have full-time status, but are equivalent to a full-time employee when grouped together. As it applies to the ACA, FTE is used solely to determine whether a business is an applicable large employer (ALE). It does not entitle part-time employees to health insurance.

What is an applicable large employer (ALE)?

Businesses are considered ALEs for the current calendar year if they had at least 50 full-time employees, including FTE employees, on average during the prior calendar year. For the purpose of this head count, a full-time employee is anyone who works at least 30 hours per week or 130 hours per month. Paid time off (PTO) due to vacation, holiday, illness, incapacity or disability, layoff, jury duty, military duty or family and medical leave of absence may all count toward the hourly totals.

Seasonal employees

An employer with seasonal employees may not be treated as an ALE if the following two conditions are met:

1. The workforce exceeds 50 full-time employees, including FTE employees, for 120 days or fewer during the calendar year.
2. The employees in excess of 50 during the 120-day period are seasonal workers as defined by the Secretary of Labor.

How to calculate FTE

Employers can determine their number of full-time equivalent employees in any given month as follows:

1. Combine the number of hours of service of all non-full-time employees for the month (do not include more than 120 hours of service per employee)
2. Divide the total by 120

If the annual total of full-time and FTE employees is not a whole number, the IRS permits employers to round down to the nearest whole number.

Calculate full-time equivalent employee example

A business calculates that its non-full-time employees collectively worked 360 hours during June. What is the number of FTE employees for that month?

360/120 = 3 FTE employees

Why calculating FTE is essential for HR management

Calculating the monthly number of full-time and FTE employees helps employers know if they become an ALE. At that point, they must fulfill the employer shared responsibility provisions and annual reporting obligations of the ACA. Both of these requirements can result in expensive penalties if they are not followed to the letter of the law.

Employer shared responsibility penalties

Employers with 50 or more full-time and FTE employees may be penalized for the following reasons:

• Minimum essential coverage (MEC) was not provided to 95% of full-time employees and their dependents.
• The coverage provided did not meet minimum value or affordability requirements.
• At least one full-time employee received a premium tax credit for purchasing coverage through the Health Insurance Marketplace.

ACA reporting penalties

ALEs are required to provide their employees and the IRS with information about the health coverage they sponsor. Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is used for this purpose. The copy sent to the IRS must also be accompanied by Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. Filing these forms late, incorrectly or not at all will result in penalties.

How a health compliance solution can help

A health compliance solution that combines technology, analytics and focused ACA experts can help businesses manage their employer shared responsibility and reporting requirements. Services from a reputable provider, like ADP, may include:

• Calculating and tracking ACA eligibility and affordability
• Providing forms to employees and other required individuals
• Transmitting data to the IRS and applicable state agencies
• Decoding complex penalty notices and drafting responses to the IRS

Frequently asked questions about the full-time equivalent meaning

What is the difference between FTE and head count?

Head count is the total number of people employed by a business. FTE is specific to the hours of service worked by non-full-time employees. For example, a company with 45 full-time employees and 14 part-time employees has a head count of 59. If those 14 part-time employees collectively work 840 hours total during a given month, the FTE is seven.

What is the 100% FTE meaning?

100% FTE is equal to one full-time employee. This metric can represent several part-time employees or a single full-time worker.

What FTE value is 30 hours?

Non-full-time employees who collectively work 30 hours total in one month are equal to 0.25 FTE (30/120 = 0.25).

What does 0.2 FTE mean?

0.2 FTE means that an employer’s non-full-time employees collectively worked 24 hours in one month.

What is 0.9 FTE?

0.9 FTE means that an employer’s non-full-time employees collectively worked 108 hours in one month.

What does 50% FTE mean?

50% FTE means that an employer’s non-full-time employees collectively worked 60 hours in one month.

What is the FTE for 37.5 hours?

If an employer’s non-full-time employees collectively worked 37.5 hours in one month, the FTE would be 0.3125.

This article is intended to be used as a starting point in analyzing the FTE definition and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.