A full-time employee is defined differently by PPACA than other state and federal laws. Under PPACA, a full-time employee is one who works an average of 30 hours a week or more. Note that salaried employees are usually deemed full-time employees.

Project-based employees and variable hour employees typically require careful scrutiny, however, because their classification as a full-time employee or part-time employee could change based on the employer’s demand for their time.

The calculation of the 30-hour-per-week average is not performed on a week-by-week basis, but rather over a longer period of time prior to any requirement to offer healthcare benefits. Employers must utilize a measurement period, also known as a look-back period, to accurately gauge whether a variable hour or project-based employee actually averages 30 hours of work per week. These periods can vary in length from three to 12 months.

Calculating the Full-Time Employee Equivalency

Under PPACA, a full-time employee equivalent is either one full-time employee or an aggregation of part-time-employee and seasonal-employee hours averaging 30 hours a week in a given time period.

Here is the formula for determining the full-time employee equivalency:

Number of full-time employees + [(Number of average part-time employee and seasonal employee hours worked in a 4-week period) / 120]

Under PPACA, a full-time employee is defined as an employee who averages 30 hours of work a week or more. Part-time employees work less than 30 hours of work a week on average. Finally, seasonal employees work 120 days or less in a year.

The full-time employee equivalency is always rounded down to the nearest whole number. Thirty hours is the maximum amount of hours an employee can work for the purposes of this formula.

The full-time employee equivalency determines whether an employer is an applicable large employer, subject to the employer mandates, or a small employer. A full-time employee equivalency of 50 or more denotes an applicable large employer. A full-time employee equivalency of less than 50 denotes a small employer.

Example 1.

In January, Employer A employs 10 employees who average more than 30 hours of work per week and 20 employees who average 15 hours of work per week. The full-time employee equivalency for Employer A in January is:

10 + [(20 * 15 * 4) / 120] =

10 + (1,200 / 120) =

10 + 10 = 20 Full-time employee equivalents

Example 2.

In February, Employer B employs 10 employees who average more than 30 hours of work per week and 25 employees who average 15 hours of work per week. The full-time employee equivalency for Employer B in February is:

10 + [(25 * 15 * 4) / 120] =

10 + (1,500 / 120) =

10 + 12.5 = 22.5 Full-time employee equivalents. The full-time employee equivalency is 22.

Example 3.

In March, Employer C employs 5 employees who average more than 30 hours of work per week, 20 employees who average 15 hours of work per week, and 10 seasonal workers who average more than 30 hours of work per week. The full-time employee equivalency for Employer C in March is:

5 + {[(20 * 15 * 4) + (10 * 30 * 4)] / 120} =

5 + [(1,200 + 1,200) / 120] =

5 + (2,400 / 120) =

5 + 20 = 25 Full-time employee equivalents

LBMC can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.

Relevant Citations:

LBMC can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.

External PPACA Resources:

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LBMC Employment Partners, LLC, a member of the LBMC Family of Companies, is a world-class professional services firm. LBMC Employment Partners provides a comprehensive suite of human resource-related services to businesses including Professional Employer Organization (PEO) services, HR Outsourcing (HRO), Payroll, Human Resource Consulting, Employee Benefits, and ACA Compliance Consulting. For more information visit www.lbmcep.com.

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