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Home ACA Compliance Calculating FT and FTE Employees [UPDATED]

Calculating FT and FTE Employees [UPDATED]

3 minute read
by Robert Sheen

As part of their annual filing of healthcare coverage information with the IRS, organizations must determine if they are Applicable Large Employers (ALEs) for purposes of the Affordable Care Act (ACA) – that is, whether they have an average of 50 or more full-time (FT) or full-time-equivalent employees (FTE) over the course of a year.

This calculation is important because of two provisions of the ACA that apply to ALEs.

First, the Employer Shared Responsibility Provisions (ESRP) outline what penalties an ALE faces if they fail to comply with the ACA. The IRS is currently issuing Letter 226J tax penalty notices to ALEs for failure to comply with ACA regulations for the 2018 tax year. Previous years are fair game as well however, as the agency made clear there is no statute of limitations for ACA penalties.

These notices contain ACA penalty assessments pertaining to ACA information filings in previous tax years. Some of these IRS Letter 226J notices contained penalties in the millions of dollars. More are expected to be issued this year, including for 2016 tax year filings. Download our infographic on how to respond to Letter 226J penalty notices to learn best practices for replying.

Second, the employer information reporting provision requires that an annual information return be submitted to the IRS. The return provides information on whether ALEs offered health coverage to their employees and their dependents, and, if so, what type of insurance was offered to the employees (e.g., affordable and minimum value). These reports can either be submitted using paper returns or submitted electronically through the Affordable Care Act Information Returns (AIR) System.

In addition, self-insured ALEs – that is, employers who sponsor self-funded group health plans – have additional provider information reporting requirements. The vast majority of employers will fall below the ALE threshold, the IRS noted. These organizations, therefore, will not be subject to the Employer Shared Responsibility Provisions.

In determining whether they are an ALE, in general, employers average their number of employees across the months in a calendar year to see whether they have at least 50 FT or FTE employees.

Below are three terms important to remember when determining if your organization is an ALE:

A full-time employee, in general, is an employee who, on average, works at least 30 hours per week, or at least 130 hours in a calendar month.

A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. For example, two employees who each work an average of 15 hours per week are equivalent to one full-time employee. In other words, any employee who isn’t designated as full-time will have their hours of services added together to account for this category. 

To determine if an organization is an Applicable Large Employer for a year, in general, the organization counts its full-time employees and full-time equivalent employees for each month of the prior year and calculates the average number of FT and FTE employees during the year.

In making the ALE calculation, organizations must determine if they are a member of an aggregated group of two or more commonly owned, related or affiliated employers.

Members of an aggregated group must combine their employees to determine their workforce size. The members of the group must count the full-time and full-time equivalent employees of all members of the group for each month of the prior year, and calculate the average number of FT and FTE employers for the year.

For example, if three firms are jointly owned, with one on average having 20 full-time employees during the year, another having 25, and the third with 12, the three firms together are an ALE.

There are additional rules for determining who is a full-time employee, including what counts as hours of service. For more information on these rules, see the employer shared responsibility final regulations and related questions and answers on

For more information, see the Determining if an Employer is an Applicable Large Employer page on the website.

Employers that fail to correctly identify themselves as an ALE could be subject to ACA penalties from the IRS.

The ACA’s Employer Mandate requires Applicable Large Employers (ALEs) (organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.

For information on how your organization should approach ACA compliance, download the 2021 ACA Essential Guide for Employers.

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