Full-Time Equivalents
Full-time equivalents convert part-time hours into a number of full-time employees. The result decides, together with your full-time count, whether you are an applicable large employer.
The three things to know.
The Calculation
For each month, add the hours of service of all employees who are not full-time, counting no more than 120 hours for any one person, then divide the total by 120. Add that number to the full-time headcount.
The 50-Employee Line
An employer averaging 50 or more full-time employees including equivalents in the prior calendar year is an applicable large employer for the current year.
Always Counted Monthly
Large-employer status is determined with monthly counts, whichever method you use for individual employees. The look-back method does not replace it.
Sources: 26 CFR § 54.4980H-2. General information, not legal advice.
A worked example.
A Company at 46 Full-Time Employees
A retailer has 46 full-time employees every month. Its part-timers log 600 hours a month in total, with no one over 120 hours.
What the Rule Produces
The part-time hours convert to 600 ÷ 120 = 5 full-time equivalents, so the monthly count is 51. If that holds across the prior calendar year, the employer is an applicable large employer even though it has only 46 full-time employees.
Four steps to apply it.
1. Pull monthly hours
Get hours of service for every non-full-time employee, month by month.
2. Apply the 120-hour cap
Cap each person at 120 hours for the month.
3. Divide and add
Divide the total by 120 and add the full-time headcount.
4. Average the year
Average the twelve months to see where you stand.
Where it goes wrong. Using a headcount of people instead of hours, which understates equivalents when part-time staff work many hours.
The questions that come up next.
Do seasonal workers count?
They count in the monthly figures, but an employer can be treated as under 50 if its workforce exceeds the threshold for 120 days or fewer in a year, and the workers in excess are seasonal.
Do all related companies count together?
Commonly owned companies are generally combined into one employer for this test, so the count is made across the group.
When do we find out we crossed 50?
Status for a year is based on the prior calendar year, so growth in one year usually creates the obligation in the next.
What if we have several related companies?
Commonly owned companies are generally combined for the count, so run it across the group.
Does a leased employee count?
It depends on who is the common-law employer. Review the arrangement with counsel.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related pages on the look-back method.
Monthly Measurement Method
The monthly measurement method decides full-time status month by month from hours of service in that month.
Look-Back Measurement Method
The look-back measurement method averages hours over a measurement period you choose, then locks the result for a stability period.
The Full Look-Back Guide
Every rule, example and source behind this page, in one place.
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