If you’re a fairly new small business owner — or you’re just paying attention to employee benefits for the first time — you may be confused about what constitutes a full-time employee under the Affordable Care Act (ACA). The answer can be a bit complex, which is why we created this blog post to guide you through the process.
Managing ACA compliance and all other HR-related issues become a lot simpler when you partner with America’s Back Office. Using economies of scale and our increased buying power as your Professional Employer Organization, America’s Back Office can protect small to mid-sized businesses from the increasing amount of government regulations and the rising cost of health insurance.
What Are Full-Time ACA Employees?
Full-time ACA employees are those who work 30 hours per week or 130 hours per month. For example, say your restaurant employs 60 people, 40 of whom work at least 30 hours per week (or 130 hours per month). Those 40 workers are considered full-time employees under the Affordable Care Act.
It becomes complicated when it comes to calculating full-time employee equivalents. To calculate this, you must add together the monthly hours of part-time employees. You can do so by following these steps:
- Take the total number of part-time employees
- Add their total hours for the month together
- Divide that total by 120
- The result is your full-time equivalent count for the month in question
- Add this to your full-time employee count to determine your ALE status for the month
The above process should be conducted each month and averaged over the preceding year to determine ALE status for the current year.
Accurately Measuring ACA Employees
It’s imperative to accurately count and classify your employees as either full-time or part-time. There are two IRS-approved measurement methods you can use; the methods allow employers to identify their full-time workers that they must offer coverage to and when that offer should be made.
The two IRS-approved measurement methods to determine ACA full-time employees are:
- The look-back measurement method —This method generally works best for variable-hour workforces with a mix of full- and part-time employees. It allows employers to monitor and track employee hours to determine whether to classify them as full-time or part-time under the Affordable Care Act before they offer coverage.
- The monthly measurement method — This method is intended for businesses with primarily full-time workforces. During the monthly measurement method, an employee’s status is taken at face value and based on whether they provided a minimum of 30 hours per week (or 130 hours per month).
Why Is an Accurate Employee Count Important?
There are two main reasons an accurate employee count is essential — first, it will help you determine your Applicable Large Employer (ALE) status, which will, in turn, save you from steep IRS penalties.
Businesses that are considered full-time employers, or ALEs, are required to follow the Affordable Care Act’s Employer Mandate, which requires employers to offer Minimum Essential Coverage (MEC) to at least 95 percent of their full-time workforce — and their dependents.
ALEs are organizations that employ at least 50-full time employees for more than 120 days per year.
Accurately determining and reporting your ACA employees and status is critical for small business owners to minimize their risk of being penalized by the IRS. Did you know a Professional Employer Organization (PEO) can help ensure you accurately count your employees and help with all other aspects of IRS compliance? Take a free PEO test today to learn more about how you can benefit from a PEO partnership.
How America’s Back Office Can Help
America’s Back Office handles HR and compliance functions to allow our clients to put their focus where it’s needed most — their customers. Take the stress of figuring out how many ACA employees you have off your hands when you partner with us. Contact us today if you’d like to learn more about how partnering with an IRS-certified PEO — a distinction only 3 percent of PEOs hold — can help you scale your business.
