FTEs are not actual employees. Instead, they represent fractions of part-time employee hours that, when added together, equal the equivalent of one or more full-time employees.
- FTEs are used only for determining Applicable Large Employer (ALE) group size under the ACA.
- FTEs are not used to decide who must be offered coverage. Employers only have to offer coverage to full-time employees (those averaging 30+ hours/week or 130+ hours/month).
- COBRA compliance calculations use a method very similar to FTEs, but with a different formula (not the 120-hour divisor). This page focuses only on ACA rules.
Step 1: Add up part-time hours per month
- For each calendar month, total the hours of service for all part-time employees.
- Cap each part-time employee at 120 hours per month for this calculation
Step 2: Convert to FTEs by month
- Divide the total part-time hours by 120.
- The result = number of “full-time equivalent” employees for that month.
Step 3: Average across 12 months
- Add the monthly FTE count to the number of actual FT employees for each month.
- Average the monthly totals over the prior calendar year.
- If the average is 50 or more, the employer is considered an ALE for the entire next calendar year, even if workforce size changes mid-year.
Important Distinction
- FTEs are a calculation, not actual people.
- Employers do not offer coverage to FTEs.
- FTEs are used only to determine ALE status.
- Once ALE status is set, employers must offer coverage only to full-time employees (30+ hours/week or 130+ hours/month).
Example
- 10 part-time employees each working 60 hours/month = 600 total hours.
- 600 ÷ 120 = 5 FTEs.