How to Calculate Full-Time Equivalent (FTE) Employees
To determine whether your business qualifies as an Applicable Large Employer (ALE) under the ACA, follow these steps:
Step 1: Count Full-Time Employees
• A full-time employee works at least 30 hours per week or 130 hours per month.
• Count all employees who meet this threshold.
Step 2: Calculate Part-Time Employees as FTEs
• Add up all the monthly hours worked by part-time employees (those who work less than 30 hours per week).
• Divide the total part-time hours by 120 to get the FTE count.
Step 3: Add Full-Time and FTE Employees Together
• If the total is 50 or more, your business is an ALE.
Example Calculation:
• 40 full-time employees
• 20 part-time employees working 80 hours per month each
• Total part-time hours = 20 × 80 = 1,600
• FTE count = 1,600 ÷ 120 = 13.3 (round to 13)
• Total employees = 40 full-time + 13 FTEs = 53 → ALE Status Applies
ACA Employer Penalties for ALEs
If an ALE does not comply with ACA requirements, they may face penalties under IRC Section 4980H:
1. “A” Penalty – Failure to Offer Minimum Essential Coverage (MEC)
• Applies if an ALE fails to offer health insurance to at least 95% of full-time employees and at least one employee receives a premium tax credit.
• Penalty in 2024: $2,970 per full-time employee (minus the first 30 employees).
Example:
• ALE has 60 full-time employees.
• Does not offer coverage.
• Penalty: (60 - 30) × $2,970 = $89,100 annually.
2. “B” Penalty – Offering Coverage That Is Not Affordable or Minimum Value
• Applies if an ALE offers coverage, but it is either unaffordable (costs more than 9.12% of household income in 2023) or does not meet minimum value (pays less than 60% of covered costs).
• Penalty in 2024: $4,460 per affected employee (only for those who receive a tax credit).
• Capped at the “A” penalty amount.
Example:
• ALE offers unaffordable insurance.
• 10 employees receive premium tax credits.
• Penalty: 10 × $4,460 = $44,600 annually.