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Proposed Rules to Determine Full Time Equivalent (FTE) Employees

Companies with 100 or more full-time employees (or an equivalent) will be required to provide “affordable” health insurance coverage to 70 percent of full time employees beginning January 1, 2015 or face a penalty.  Beginning January 1, 2016 companies with 50 or more full-time equivalent employees must offer coverage to at least 95 percent of their full time employees to avoid a penalty.

The IRS has proposed a new regulation to clarify how employers can determine the number of full-time equivalent (FTE) employees to determine if they are in compliance with the employer responsibility obligation under the health care law.

A full time employee is defined as an employee who is employed an average of at least 30 hours of per week. The proposed rule states that a FTE employee working 130 hours in a calendar month satisfies the 30 hours of work per week requirement. The proposal would prescribe three different methods to determine whether a non-hourly employee qualifies:

  1. Counting actual hours of service.
  2. Using a days-worked equivalency, in which eight hours of service counts as a day.
  3. Using a weeks-worked equivalency, in which 40 hours of service per week counts as a week.

Companies can apply the methods to different classifications of non-hourly employees, as long as it is done consistently and does not understate their hours in service so as to disqualify them from health coverage. New hires will be under a 12-week grace period before their status is reviewed under a look-back formula.

More information is available here.