Do the Math: The ACA Means Correct Counting

It's eight months into 2014. Do you know how many employees you have? If you don’t, it could soon cost you.

Employers who have not accurately counted the number and type of employees within their organization by Jan. 1, 2015, could end up with unnecessary expenditures as a result of the Affordable Care Act’s employer mandate. The legislation states that all businesses with more than 50 full-time-equivalent employees must provide health insurance to their full-time employees or pay a maximum penalty of $3,000 per employee who is not offered coverage and instead seeks it on the public exchanges. 

Pop quiz: What’s a full-time equivalent employee?

Don’t fret if the answer didn’t immediately come to mind. Questions like this are still stumping employers nationwide. Add the government’s recent decision to defer the compliance deadline for companies with between 50 and 99 employees until Jan. 1, 2016, and the potential value of getting the correct count only increases.

Before diving into the 1,000-page document for the answer, try this two-test approach instead.

The first test determines the number of full-time-equivalent employees. Begin by selecting a measurement period in 2014. According to the employer mandate, this period can be between three and 12 months in length.

“A good rule of thumb is that a full-time employee equals two part-time employees,” said Dorothy Miraglia, the vice president of benefits at Engage PEO, an HR payroll and benefits company.

Those preferring long math can add up the hours worked by the part-time employees and divide that number by 130, which is the number of hours a full-time employee works in a month, said Andrew Molloy, an assistant vice president at Unum Group. Add this number to the total number of full-time employees who work 30 or more hours a week. This value is the company’s total number of FTEs.

The legislation states that if the number is between 50 and 99, the company isn’t required to provide health insurance until Jan. 1, 2016. If the company has 100 or more, coverage must be provided by Jan. 1, 2015.

The second test determines which employees must be offered coverage. Simply, only those employees who work 30 or more hours a week qualify for coverage.