What FTEs Are
Full-time equivalents (FTEs) aren’t actual employees. They’re a way of combining part-time employees’ hours into the equivalent of full-time employees.
FTEs are used for one purpose: determining whether an employer is an Applicable Large Employer (ALE). The employer mandate looks only at whether coverage is offered to full-time employees. Coverage isn’t offered to “FTEs.”
How FTEs Are Counted
Step 1: Add up part-time hours for each month.
For each calendar month, total the hours of service of all part-time employees, counting no more than 120 hours per employee.
Step 2: Convert to FTEs.
Divide that total by 120. The result is the number of FTEs for that month, which can include a fraction, such as 5.5.
Step 3: Average over the year.
For each month of the prior calendar year, add the FTEs to the number of full-time employees. Then add up all 12 monthly totals and divide by 12.
If the average is 50 or more, the employer is an ALE for the entire next calendar year, even if its workforce changes during the year.
For example, 10 part-time employees who each work 60 hours in a month total 600 hours. 600 ÷ 120 = 5 FTEs for that month.
A Note on COBRA
Federal COBRA also counts part-time employees when determining employer size, but it uses a different method. The ACA’s FTE calculation doesn’t apply to COBRA. See COBRA Overview & Applicability.
Important: This information is provided for general educational purposes. It is not legal or tax advice. How these rules apply depends on each employer’s specific circumstances, so employers should review their situation with their own legal counsel, ERISA attorney, CPA or tax advisor.