The employer mandate, which has been pushed back to January 1, 2015, requires applicable large employers to offer health insurance to its employees. A full-time employee is defined as an employee, for any calendar month, who works an average of 30 hours per week. An applicable large employer is an employer who employs an average, determined on a monthly basis, of 50 or more full-time employees for the preceding tax year. Reg. §54.4980H-1(a)(21)(ii) states that an employee who works 130 hours or more any calendar month is deemed to be a full-time employee.
Solely for purposes of determining if the employer is an applicable large employer, the employer must also calculate the full-time equivalent (FTE) of employees who are not full-time employees and add this figure to the number of full-time employees.
An FTE is an employee who:
- Worked less than an average of 30 hours per week.
Did not work more than 130 hours for any calendar month.
FTE is determined by taking the total amount of hours for each part-time employee for the month and dividing by 120. Fractions are taken into account; therefore, if the employer has 49.5 full-time employees, the employer is not an applicable large employer.
Example: Employer A has 23 employees who work on a full-time basis. In addition to the full-time staff, Employer A also has 32 employees that work on a part-time basis of 100 hours per month. These numbers remain the same for every month in 2014, thus, eliminating the need to sum the months and divide by 12.
32 X 100 = 3,200. 3,200 / 120 = 26.667 FTE. 23 full-time employees + 26.667 FTE = 49.667.
Thus, Employer A is not an applicable large employer because Employer A employs less than 50 full-time employees, including FTEs for 2014. Employer A will not be subject to the penalty in 2015.
NATP has added a tool to assist tax professionals in determining if a taxpayer is an applicable large employer.
Featured in the TAXPRO Weekly - August 1, 2013