Under the Affordable Care Act, beginning January 1, 2014, an employer with 50 or more full time employees is considered an Applicable Large Employer and must provide affordable coverage to its employees or face significant penalties (the Employer Mandate). In some cases, even employers with less than 50 full time employees can be subject to the Employer Mandate.
An employer is subject to the Affordable Care Act Employer Mandate as an Applicable Large Employer if it employed an average of at least 50 full-time employees (including full-time equivalent employees (FTEs)) on business days during the preceding calendar year. We use the term "FT Employees" to represent this calculation of Full-Time Employees and FTEs. Please note: Our summary of this calculation does not cover the more complex determination of which employees are entitled to affordable minimum coverage if the employer qualifies as an Applicable Large Employer.
Most important, transition relief is provided for the 2014 calendar year. This gives an employer the option to determine its status as an Applicable Large Employer by reference to a period of at least six consecutive calendar months, as chosen by the employer, in the 2013 calendar year (rather than the entire 2013 calendar year). Thus, an employer may determine whether it is an Applicable Large Employer for 2014 by determining whether it employed an average of at least 50 FT Employees on business days during any consecutive six-month period in 2013.
Full-Time Employees: Full-time employee status is determined on a monthly basis. A Full-Time Employee with respect to any month is an employee (including a seasonal employee) who is employed, on average, at least 30 hours of service per week (or at least 130 hours of service in the calendar month). An employee who is not a full-time employee under this standard (including a seasonal employee) for a given month is taken into account in the FTE calculation.
Full-Time Equivalent Employees: In determining whether an employer is an Applicable Large Employer for the current calendar year, the employer is required to calculate the number of FTEs it employed during the preceding calendar year. All employees (including seasonal employees) who were not full-time employees for any month in the preceding calendar year are included in calculating the employer's FTEs for that month. The number of FTEs for each calendar month in the preceding calendar year are determined 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.
In determining the number of FTEs for each calendar month, fractions would be taken into account. For example, if in a calendar month employees who are not full-time employees work 1,260 hours, there would be 10.5 FTEs for that month.
Seasonal Employees: Seasonal employees are employees who perform labor or services on a seasonal basis as defined by the Secretary of Labor, including seasonal workers covered by 29 C.F.R. § 500.20(s)(1) and retail workers employed exclusively during holiday seasons. If an employer's workforce exceeds 50 FT employees (see below) for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal employees, the employer would not be an Applicable Large Employer. For this purpose only, four calendar months would be treated as the equivalent of 120 days. The four calendar months and the 120 days are not required to be consecutive.
Calculating the Number of FT Employees: The steps in calculating the number of FT Employees in the preceding calendar year, and thus whether the employer is an Applicable Large Employer for the current calendar year, are:
1) Calculate the number of full-time employees (including seasonal employees) for each calendar month in the preceding calendar year.
2) Calculate the number of FTEs (including seasonal employees) for each calendar month in the preceding calendar year (as described above).
3) Add the number of full-time 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. However, after adding the 12 monthly full-time employee and FTE totals, and dividing by 12, all fractions are disregarded. For example, 49.9 FT Employees for the preceding calendar year are rounded down to 49 FT Employees (and thus the employer would not be an Applicable Large Employer in the current 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, determine whether the seasonal employee exception, as described above, applies. If the seasonal employee exception applies, the employer is not an Applicable Large Employer for the current calendar year. If the seasonal employee exception does not apply, the employer is an Applicable Large Employer for the current calendar year.