How to calculate FTEs to determine ALE status

Written by: Elizabeth Walker
Published on October 7, 2022.

If you’re an employer who wants to understand if the Affordable Care Act’s (ACA) employer mandate applies to you, it’s important to calculate your number of full-time equivalent employees (FTEs). Understanding the number of FTEs your company has allows you to determine if your company is considered an applicable large employer (ALE) and is legally required to adhere to the employer mandate or potentially pay a penalty.

If you are an ALE, you can avoid the employer mandate’s two penalties if you offer affordable health coverage that meets minimum essential coverage (MEC) to FTEs and their dependents on an annual basis.To find out if these requirements apply to your business, you first must do a simple calculation to determine your company’s FTE status. This article will show you how to do just that.

Want to learn more about the employer mandate and ALEs? Check out our complete guide

What is an ALE?

An ALE is an organization that has 50 or more FTEs. ALE status is determined by calculating the total average FTEs during the prior year.

If your business qualifies as an ALE, you must offer health insurance policies to your employees, as required by the ACA, or potentially be subject to a tax penalty. You’ll also need to complete IRS forms 1094-C and 1095-C describing the type of healthcare you provided according to the employer shared responsibility provisions (ESPR).

If your business has fewer than 50 FTEs, you aren’t considered an ALE, and therefore aren’t required to offer health insurance policies to your employees or pay a penalty. However, it's a good idea for employers of all sizes to provide health benefits to care for your employees and increase employee retention.

What is an FTE employee?

Many employers often wonder what the difference is between a full-time employee and a full-time equivalent employee. An individual employee is considered full-time if they average at least 30 hours per week or at least 130 hours per month. While 30 hours per week is the minimum number of hours needed to be classified as full-time by the IRS, in many companies, a 40-hour workweek is considered full-time hours.

However, a full-time employee is not the same as a full-time equivalent. The number of full-time equivalent employees at an organization is made up by a combination of full-time and part-time employees. According to the ACA, part-time hours are considered anything less than 30 hours per week.

A business owner can calculate how many full-time employees they have and the number of part-time employees that count as full-time equivalent employees to make up their total FTE count.

What is the difference between FTE and headcount?

An FTE count and headcount are different methods of measuring business size, but they serve different purposes. A headcount simply counts the total number of people employed at your organization or within a particular department.

A headcount is important to know for a variety of reasons, such as tracking your individual employee turnover, calculating the productivity of your workforce, budgeting for labor costs, or comparing the size of your workforce to your industry competitors.

Unlike FTEs, your headcount is totaled regardless of how many full-time or part-time employees you have or the number of hours per day they work. Depending on how many part-time workers you employ, you’re likely to have a higher overall headcount than FTEs.

How do you calculate monthly FTEs?

To determine if your company is an ALE, you must include all FTEs in your total number. To calculate the full-time equivalent of part-time employees, add the actual hours worked by all part-time workers, including seasonal workers, in a given month and divide the total by 120. This gives you the number of FTEs in your part-time workforce.

Then, as shown in the example illustration, calculate the number of actual hours worked by full-time employees per time period by multiplying your employees by 40 weekly hours and then by 52.

FTE calculation

Lastly, add the number of full-time employees you have to the full-time equivalent of your part-time employees to get your total FTEs for your organization.

Remember, your business is not considered an ALE if you employed less than 50 FTEs on average during the previous calendar year. If you employ seasonal workers and their hours cause your total number of employees to exceed 50 or more, you may be able to apply the seasonal worker exemption.

You qualify for the seasonal worker exemption if you meet both of the following criteria:

  1. The employer's workforce exceeds 50 full-time workers (including full-time equivalent employees) for 120 days or fewer during the calendar year, AND
  2. The employees in excess of 50 employed during the 120-day time period are seasonal workers.

Why are FTE calculations important for employers?

Besides ALEs needing to know their FTE status to comply with the employer mandate or not, understanding how many FTEs you have at your organization is good for your company’s metrics. Being able to track your employees’ workloads and output between your full-time employees and FTEs gives you more insight into how efficiently your employees are working.

Additionally, some state and federal employment laws will only apply to your organization if you have a certain amount of FTEs. This is similar to how certain laws only apply to a full-time employee, but not a part-time employee.

As such, you may consider making it your internal company policy to calculate your employees' average hours per week and your FTEs every year to maintain an accurate picture of your organization.


The ACA makes health coverage a shared responsibility of individuals, employers, and the government to ensure that as many people as possible have affordable health insurance. While the law doesn’t require all business organizations to offer health insurance to their workers, employers who have 50 or more FTEs and are therefore considered ALEs must comply with the employer mandate. Thankfully, a business owner can easily confirm their ALE status.

Knowing the difference between a full-time employee, a part-time employee, and an equivalent employee is a good place to start. Proper calculations are crucial for the organization to ensure you’re meeting employer mandate regulations, submitting proper reporting, and avoiding costly penalties.

This article was originally published on January 21, 2022. It was last updated on October 7, 2022.

Originally published on October 7, 2022. Last updated October 7, 2022.


Additional Resources

View All Resources