So Really, How Many Employees Do You Have?

The Answer Is Not As Easy As It May Seem
By Robert Falke, Benefits Consultant

Sometimes, it’s just not that easy to determine how many employees you have.  And in today’s world, it’s more important than ever for you know how to do it correctly.  So get your calculator out and listen up.  Particularly if you hire lots of part-time and/or seasonal employees.  Here’s a summary of what you should know.

Large vs. Small

The new rules of healthcare kicking into gear in the coming year are quite different for “large” companies vs. “small” companies.  And fifty is the magic number.  Large companies are companies who, on average, employ 50 or more full-time employees plus full-time equivalents from the proceeding calendar year.  Small companies are everyone else.  

Why Does it Matter?

The “pay or play” provisions of the ACA will apply if you are a large employer.  As a large employer, your employee’s medical program will need to pass the Essential Benefit and Affordability rules.  It also comes into play if you decide to abandon your employee medical program and send your employees to the newly established state/federal exchanges (expected to be available in late 2013).  If your plan does not pass the first scenario, penalties may apply.  If you elect to not offer coverage, penalties will apply.  So it’s important to know if you’re “big” or “little.”

Do the Math

The term “FT employees” in the tax code (Notice 2011-36) means the sum of your full-time employees and full-time equivalents. Full-time employees are employees who work on average 30 hours a week or more.  That part is relatively straightforward.  The catch is in the full-time equivalents  (FTE).  To determine your FTE:

(1) Calculate the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not full-time employees for that month.

(2) Divide the total hours of service in step (1) by 120. This is the number of FTEs for the calendar month.

For example, you may have only 35 employees (working full-time, or more than 30 hours a week). However, you have dozens of part-time and seasonal help whose total hours  in the proceeding year add up to 17 FTEs.  So now you are classified as a “large” company and must comply with the pay or play healthcare mandates.

New Notice Provides Safe Harbor

In early September, the IRS released new guidelines to help employees determine the full-time employment status of their employees.  The new,  look-back/stability period safe harbor method allows an employer to determine each employee’s full-time status by looking back at a defined period of not less than three but not more than 12 consecutive calendar months, to determine whether the employee averaged at least 30 hours of service per week. If the employee were determined to be a full-time employee during this period, then the employee would be treated as a full-time employee during a subsequent “stability period,” regardless of the employee’s number of hours of service during the stability period. 

Additional details and nuances are provided at

http://www.irs.gov/pub/irs-drop/n-12-58.pdf.

If you’re one of those companies who are not quite sure where you fall – or need help in accurately calculating the size of your workforce, contact your benefits advisor.  Getting a handle on these issues now will help you prepare for the new future of healthcare.

For more information found in the Internal Revenue Bulletin: 2011-21, click here (http://www.irs.gov/irb/2011-21_IRB/ar07.html#d0e145.