Full-Time Employee Service Hours: How to Add Them Up

Yesterday, we gave you the basic formula for calculating your employees’ total hours worked so that you could assess how many full-time equivalent employees (FTEs) you employ. It’s important to know the exact number of FTEs working for you for the sake of filing your Affordable Care Act return. When totaling your employees’ hours worked, you’ll want to make sure you’re calculating them in one of the three IRS-allowed ways to ensure your ACA compliance.

Before we get down to the types of calculation, let’s clarify what’s included in hours of service. Obviously, it’s hours spent working by the employee, but hours of service also include hours for which the employee is paid for:

• vacation or holiday,
• illness or incapacity (including disability),
• layoff,
• jury duty, and
• military duty or leave of absence.

When calculating your total hours of service, do not include hours for seasonal employees (who work less than 120 days).

Actual Hours Worked
The most straight-forward method, the Actual Hours Worked calculation method determines the actual hours of service from records of hours your employees worked and were paid. So if your payroll records indicate an employee worked 2,000 hours and was paid for an additional 80 hours (for vacation, holiday, and illness leave), the employee would have worked 2,080 hours of service for the year.

Days-Worked Equivalency
If you use the Days-Worked Equivalency method, you’ll credit an employee with eight hours of service for each day the employee was required to work at least one hour of service, including hours of paid leave. In other words, if you use this method and you have an employee who works from 8:00 a.m. to 12:00 p.m. each day for 200 days, the employee would be credited with 1,600 hours of service (8 hours for each day worked, multiplied by 200 days).

Weeks-Worked Equivalency
This method is a little similar to our previous one, only it goes by weeks instead of days. When you use the Weeks-Worked Equivalency method, you credit an employee with 40 hours of service for each week for which payment is made or due (including weeks of paid leave). For example, if you have an employee who worked 49 weeks and took two weeks of vacation with pay, the employee must be credited with 2,040 hours of service (51 weeks x 40 hours/week).

E-filing With ExpressIRSForms
When you e-file with ExpressIRSForms, you have access to our full-time employee calculator, making your ACA e-filing that much easier. To get started, just create an account, then follow the steps to generate and e-file your forms. If you run into any problems or have a question, you can give our expert customer service team a call at (704) 684-4751 Monday through Friday, 9;00 a.m. to 6:00 p.m. ET or send us an email anytime to support@ExpressIRSForms.com.

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How to Determine Average Annual Wages of Your Full-Time Employees

Whether or not you need to file Forms 1094-C and 1095-C is determined by your total number of full-time employees. The average annual wages you pay your employees also figures into your ACA compliance, so it’s important to be able to correctly calculate not only your total of full-time employees but their collective wages as well.

What is a Full-Time Equivalent Employee (FTE)?
A full-time equivalent employee (FTE) is an employee whose hours of paid service equal or exceed the 30-hour per week full-time standard for employees as outlined by the IRS. An FTE can be one employee who works more than 30 hours a week, or can be made up of two or more part-time employees whose combined hours exceed 30 hours.

Who is Considered an Employee when Determining FTEs and Average Annual Wage?
Generally, all of your employees will be taken into consideration when determining your FTE total and average annual FTE wages. This includes employees who terminated employment during the tax year, employees covered under a collective bargaining agreement, and employees not enrolled in your health care coverage.

Can I be Counted as an Employee if I Own My Small Business?
No. Additionally, the following individuals are not considered employees for the purposes of the credit:

• Any other owners of the business, like sole proprietors, partners, or shareholders who own greater than 2% of an S corporation or 5% of a C corporation
• Spouses of the owners
• Family members of the owners, including children, grandchildren, [step] siblings, [step] parents, nieces/nephews, aunts/uncles, son/daughter-in-laws, father/mother-in-laws, brother/sister-in-laws
• Spouses of family members of the owners

How is the Number of FTEs Determined?
To determine your FTEs:

1. Add up the total hours of service you pay wages to employees during the year (not to exceed 2,080 hrs/employee).
2. Divide that amount by 2,080.
3. If necessary, round to the next lowest whole number. If your result is less than one, round up to one.

Example: An employer pays five employees for 2,080 hours each and three employees for 1,040 hours each:

1. (5 x 2,080) + (3 x 1,040) = 13,520
2. 13,520 / 2,080 = 6.5
3. The employer has six FTEs

How are the Average Annual Wages Determined?
When determining the average annual wages, all wages paid to employees, including overtime, are taken into consideration:

1. Add up the total wages you paid during the taxable year to your employees.
2. Divide that by the number of FTEs you had during the year.
3. If necessary, round your result down to the nearest $1,000.

Example: An employer pays a total of $224,000 in wages to employees and has 10 FTEs.

1. $224,000 / 10 = $22,400
2. The employer’s average annual wages are $22,000

E-filing with ExpressIRSForms
Parts of the ExpressIRSForms e-filing process for ACA forms include a full-time employee calculator and multiple error checks to ensure your return is ACA compliant. Create an account today to get started. If you need any help, you can give our customer support staff a call at (704) 684-4751 or send us a live chat Monday through Friday, 9:00 a.m. to 6:00 p.m. ET. We also provide 24/7 email assistance at support@ExpressIRSForms.com.

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