How do part-time employees count toward the 50-employee line?
The short answer: add up each month’s hours for everyone not full-time, counting no more than 120 per person, and divide by 120. The result is added to the full-time count for that month.
The three things to know.
The Formula
Total hours of service for employees who are not full-time, capped at 120 hours per person per month, divided by 120.
Averaged Over the Year
The monthly full-time plus equivalent counts are averaged across the twelve months of the prior calendar year.
The Effect
A business with 40 full-time employees and a large part-time group can cross 50 without hiring another full-time employee.
Sources: 26 CFR § 54.4980H-2. General information, not legal advice.
A worked example.
Counting a Part-Time Group
A restaurant has 38 full-time employees and 30 part-timers who each work between 60 and 100 hours a month, totaling 2,400 hours in a typical month.
What the Rule Produces
The part-time hours convert to 2,400 ÷ 120 = 20 equivalents, so the monthly count is 58. If this is the average for the prior year, the restaurant is an applicable large employer.
Four steps to apply it.
1. List part-time employees
Find everyone under 30 hours.
2. Total monthly hours
Cap each person at 120.
3. Divide by 120
Compute the equivalents.
4. Add full-time employees
Average the year.
Where it goes wrong. Using the number of part-time employees instead of their hours.
The full answer.
The Formula in Plain Terms
Add up the hours of service of all employees who are not full-time in the month, counting no more than 120 hours for any one person. Divide the total by 120. The result is the number of full-time equivalents for that month.
Why There Is a Cap
The cap keeps one person’s hours from counting as more than a part-timer. An employee at or above 130 hours is already counted as full-time, so the cap only affects people between 120 and 130 hours.
Averaging Across the Year
Each month produces a count of full-time employees plus equivalents. Average the twelve months of the prior calendar year. If the average is 50 or more, you are an applicable large employer for the current year.
What to Do If You Are Close
If the average is within a few employees of 50, run the numbers with real hours, check whether commonly owned companies combine, and ask whether the seasonal-worker exception applies.
The questions that come up next.
Do owners’ hours count?
Only employees’ hours count. Check how owners are classified.
Do we count each month the same?
Yes. Compute each month, then average the twelve.
Where is the calculator?
Use the large employer calculator on our site.
Do owners count?
Only if they are employees.
Do seasonal workers count?
They count, subject to the seasonal-worker exception.
Do we count each part-time person as one?
No. Hours decide, not headcount.
Does the average use the same 12 months for everyone?
It uses the prior calendar year for all employers.
Is there a calculator?
Yes. Use the large employer calculator on our site.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related pages on the look-back method.
What counts as an hour of service?
The short answer: hours worked, plus hours for which pay is made or due, including paid vacation, holiday, sick leave, jury duty and other paid leave.
How do we treat a new hire we expect to work full-time?
The short answer: measure month by month from the start date.
The Full Look-Back Guide
Every rule, example and source behind this page, in one place.
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