Starting in 2014, the Patient Protection and Affordable Care Act (PPACA or ACA), otherwise known as Obama Care, will require a “qualified large employer” (QLE) to either offer affordable health coverage or make a shared responsibility payment. Affordable health coverage is defined as health insurance that meets the minimum essential coverage requirements of the ACA and doesn’t cost the employee any more than 9.5% of their W-2 Box 1 annual wages. A QLE is one who employed at least 50 full-time employees during the preceding calendar year. An employee is a worker who is employed by you under the common-law test, and a full-time employee is anyone who is employed, on average, at least 30 hours per week or 130 hours in the calendar month. Hours of service include hours for which an employee is paid, but does not work, such as vacation and holiday time. For compliance purposes, full-time employee status is
determined on a monthly basis and you must report this information to the IRS and maintain a record as part of your tax files. For hourly employees, you must track the actual hours, but there are optional days-worked and weeksworked rules for salaried employees. Additionally, part-time and seasonal employees must be counted to determine the number of full-time equivalents (FTE).


To calculate the number of FTE’s, follow these steps:

  • Calculate the aggregate number of hours of service for all employees who were not full-time employees for each calendar month. Do not include hours of service for any employee in excess of 120 hours. In other words, if Employee A works 122 hours, you only count the first 120 hours.
  • Divide the total hours of service by 120. The result equals the number of FTE’s for that calendar month.
  • Calculate the number of full-time employees for each calendar month.
  • Add the number of full-time employees to the number of FTE’s.
  • Add up the 12 monthly numbers and divide the sum by 12.
  • If the number of FT employees in step 5 is less than 50, you are not a QLE.
  • If the number of FT employees in step 5 is 50 or more, determine if the seasonal employee exception applies (see next step).
  • If your workforce exceeds 50 full-time employees for no more than 4 months during a calendar year, AND the employees in excess of 50 for those months were seasonal employees, then you are not a QLE.

Running a monthly calculation will likely be impractical and create uncertainty as to which employees are considered fulltime, especially for employees with varying hours. Not to mention the administrative problems that employers, state exchanges and insurance companies would face with canceling and reinstating coverage from month to month as employees move in and out of qualifying status. The ACA does not specify how you must determine your FT employee count but it does offer a “safe harbor” method which, if followed, will exempt you from the penalties associated with miscalculating. There is a separate process for determining the full-time status of ongoing employees, verses new employees but let’s look at the ongoing employee method first. IRS Notice 2012-58, issued on October 9, 2012, describes the safe harbor methods that employers may use (but are not required to use) to determine which employees are treated as full-time employees for ACA purposes. The safe harbor method describes three different time periods that are used to establish your count of FTE’s. The three periods are:

  • Standard measurement period
  • Administrative period
  • Stability period

The Standard Measurement Period

Under the safe harbor method, you will determine each employee’s full-time status by looking back at a standard measurement period, a defined time period of not less than three, but not more than 12 consecutive months, your choice. You have the flexibility to determine the months in which the standard measurement period starts and ends, but they must be consecutive. You may use a different measurement period for different categories of employees as long as that determination is made on a uniform and consistent basis for all employees in the same category. The approved categories are:

  • Collectively bargained employees and non-collectively bargained employees
  • Salaried employees and hourly employees
  • Employees of different entities
  • Employees located in different states

The standard measurement period may be followed by an administrative period.

The Administrative Period

This period may not last longer than 3 months and does not reduce or extend the measurement period or the following stability period. This time is used to:

  • Notify employees of their eligibility for the plan and of the coverage available under the plan
  • Answer questions and collect materials from employees
  • Enroll employees who elect coverage in the plan

The administrative period is followed by a stability period.

The Stability Period

This is the period of coverage where all of the full-time employees identified during the standard measurement period and enrolled during the administrative period are covered under your health plan regardless of whether or not their full-time status changes during this time, so long as they remain an employee. The stability period must be at least the six consecutive calendar months that follow the administrative period and no shorter than the measurement period. In other words, if you elect a 10 month measurement period, the stability period must also be 10 months. If you elect a 3 month measurement period, the stability period must be at least six months.
Below is an example of the calculation using a hypothetical costume company with part-time and seasonal employees. In this example, Not Too Scary Costumes, Inc. (NTSCI) is not a QLE based upon a 12 month standard measurement period, even though the calculation shows 50 full-time employees. NTSCI used 24 full-time seasonal employees in September and 19 in October. Due to the seasonal employee rule, NTSCI is not a QLE. The seasonal employee rule says that if an employer’s workforce exceeds 50 FT employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal employees, the employer would not be an applicable large employer. Four calendar months would be treated as the equivalent of 120 days.

You will have to recalculate your status before the end of each stability period so that employees insured during the prior stability period remain covered during the subsequent administrative period, even if their status changes to parttime during that period.

Vensure is working quickly to establish a calculation and analysis service for its clients and working to find MEC health plan options for you. Below you will find a link to a White Paper/Case Study written by Rich Boehling, CEO of Productive, Inc., a Vensure client company. Rich has significant knowledge of the ACA and was invited to the White House last fall to discuss the impact of the ACA on small business. Rich is also a regular speaker on the ACA. We are excited to be associated with Rich and hope to work with him on alternative strategies for assisting QLE’s with becoming small employers, thereby avoiding the ACA compliance requirement altogether.