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How to calculate FTEs to determine ALE status

Applicable Large Employers • February 23, 2024 at 8:20 AM • Written by: Elizabeth Walker

If you’re an employer, you need to understand if the Affordable Care Act’s (ACA) employer mandate applies to you. You can find out by calculating your number of full-time equivalent employees (FTEs).

Understanding the number of FTEs your company has allows you to determine if the federal government considers your company an applicable large employer (ALE) and, therefore, subject to the employer mandate or a penalty. You can avoid penalties by offering affordable health coverage that meets minimum essential coverage (MEC) to full-time employees and their dependents.

To determine if these requirements apply to your business, you must first calculate your company’s FTE status. This article will show you how to do just that.

Takeaways from this blog post:

  • An applicable large employer (ALE) is an organization with 50 or more full-time equivalent employees (FTEs). You can calculate your FTEs by combining your full-time and part-time employees to determine if you’re subject to certain labor laws and mandates.
  • Understanding the number of FTEs in an organization is crucial for maintaining compliance with employment laws and monitoring employee efficiency and workload. Additionally, it impacts the health insurance options available to them.
  • If you qualify as an ALE, you can satisfy the employer mandate and avoid penalties by offering traditional group health insurance or an alternative like an individual coverage health reimbursement arrangement (ICHRA).

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. You can determine your ALE status by calculating your total average FTEs during the prior year.

Under the ACA, you must offer health insurance policies to your full-time employees and their dependents or potentially be subject to a tax penalty if your business qualifies as an ALE. Under this mandate, a dependent is an employee’s child or individual in the employee’s care who hasn’t turned 26.

Your health plan must meet the following requirements to satisfy the employer mandate:

  • It must provide MEC.
  • The IRS must consider the coverage affordable.
    • This means the lowest-cost self-only health coverage can’t exceed a threshold of 8.39% of an individual employee’s household income in 2024.
  • The plan must provide minimum value.
    • This means the plan has to cover at least 60% of the average costs for a standard population, which is the actuarial value of bronze-tier plans on the individual market.

ALEs must also complete IRS forms 1094-C and 1095-C, which describe the type of healthcare they provided to meet the employer shared responsibility provisions (ESPR). It’s always best to get assistance from your financial advisor to prevent tax filing errors.

If your business has fewer than 50 FTEs, the IRS doesn’t consider you an ALE. Therefore, you don’t have 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 their employees to support their well-being and increase retention.

What is an FTE employee?

Employers who offer employee benefits often wonder what the difference is between a full-time employee and a full-time equivalent employee. The IRS considers an individual employee 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 for the IRS to classify an employee as full-time, many business owners’ company policies consider a 40-hour workweek full-time hours.

However, a full-time equivalent is essentially a unit of measurement. It’s the total number of full-time and part-time employees at an organization. For FTE purposes, the ACA takes into account the part-time hours of employees who work fewer than 30 weekly hours.

A business owner can calculate how many full-time employees they have and the number of part-time hours 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 essential for various reasons, such as tracking your employee turnover, calculating the productivity of your workforce, budgeting for labor costs, or comparing the size of your entire workforce to your industry competitors.

Unlike FTEs, you determine your headcount regardless of how many full-time or part-time employees you have or the number of hours per day per week they work. Depending on how many part-time workers you employ, you’ll likely 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 in the previous year, including seasonal or temporary workers, in a single month and divide the total by 120. This gives you the number of FTEs in your part-time workforce.

Then, add the number of full-time employees at your organization (anyone who works 30 or more hours each week) to the number you got in the step above to get the total number of FTEs.

To look at it another way, check out the formula below:

(Total part-time hours in a month / 120) + the number of full-time employees = Number of FTEs for the month

You don’t need to include the following employees in your FTE calculations:

Remember, your business isn’t an ALE if you employed less than 50 FTEs on average during the previous calendar year.

What is the seasonal worker exemption?

As mentioned above, you must count seasonal or temporary employees in your FTE calculations. The IRS defines these individuals as employees working on a seasonal basis who you hire into a position for an annual employment of less than six months.

However, if you employ seasonal workers whose hours cause your total number of employees to exceed 50 or more, you may qualify for the seasonal worker exemption1.

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 necessary 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 vital for your company’s metrics. Tracking your employees’ workloads and output between your full-time employees and FTEs gives you more insight into your employees' real performance.

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 those with full-time employment but not part-time employees.

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

What are the health insurance options for ALEs?

If you’re a business owner with enough FTEs to qualify you as an ALE, you must offer comprehensive health coverage that satisfies the employer mandate. Luckily, there are a few options available to you. Let’s briefly go over them in the sections below.

Traditional group health insurance

The most popular way to offer your employees health coverage is traditional group health insurance. Also known as an employer-sponsored health plan, business owners choose a group health plan for their organization and offer coverage to their employees and eligible dependents at a reduced rate.

You can purchase a group health policy through an insurance carrier, licensed agent, or insurance broker. Because you’re an ALE, you’ll likely be able to receive reduced premium rates and have no problem meeting an insurer’s participation requirements, which typically require at least 70% of your employees to participate.

While it’s a familiar option for most employees, group health insurance can have downsides. Depending on your workforce demographics and location, the coverage may not meet every employee’s needs, and you may have limited plan options—especially if you’re a remote company with your entire staff spread across the U.S. Group plans can also come with steep annual rate hikes.

Health reimbursement arrangements (HRAs)

One of the most flexible options for ALEs is a health reimbursement arrangement (HRA). An HRA is a tax-free health benefit employers use to reimburse employees for individual health insurance premiums and qualified out-of-pocket medical expenses.

With an HRA, you set a monthly allowance that individual employees can spend on healthcare costs. Once employees make an approved purchase, you reimburse them up to their allowance amount.

HRAs are an excellent option for business owners because they have no annual rate hikes, participation requirements, or minimum contribution limits, meaning they can work with every organization’s budget.

The following two HRAs can work best for ALEs:

  1. Individual coverage HRA (ICHRA): Only available to employees with an individual health plan, the ICHRA is for businesses of all sizes. They have no maximum contribution limits, and you can set different allowance amounts based on 11 employee classes to make it easier to customize the benefit. Depending on how you design your ICHRA, it can satisfy the ACA’s employer mandate.
    1. Employees can purchase a qualified health plan on the public health exchange, like the federal Health Insurance Marketplace, or on a private exchange.
  2. Group coverage HRA (GCHRA): Also known as an integrated HRA, this benefit is specifically for employers that offer a group health plan. It allows you to reimburse your employees tax-free for out-of-pocket medical expenses that your group policy doesn’t fully cover, like deductibles and coinsurance. Like the ICHRA, there are no minimum or maximum employer contribution limits.
    1. Only employees enrolled in your company’s group health plan can participate in the GHCRA benefit.

Learn more about how HRAs compare with group health insurance in our chart


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 businesses to offer health insurance to their workers, employers with 50 or more FTEs are ALEs and must comply with the employer mandate. Thankfully, business owners can easily confirm their ALE status.

Knowing the difference between a full-time, part-time, and equivalent employee is a good place to start. Proper calculations can help ensure you’ll meet employer mandate regulations, submit appropriate reporting, and avoid costly penalties.

If you believe an HRA is the best way to satisfy the employer mandate, contact us at PeopleKeep, and we’ll help you offer one at your company!

This article was originally published on January 21, 2022. It was last updated on February 23, 2024.

1. https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer#:~:text=or%20more%20information.-,Seasonal%20Workers,-When%20determining%20if

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Elizabeth Walker

Elizabeth Walker is a content marketing specialist at PeopleKeep. She has worked for the company since April 2021. Elizabeth has been a writer for more than 20 years and has written several poems and short stories, in addition to publishing two children’s books in 2019 and 2021. Her background as a musician and love of the arts continues to inspire her writing and strengthens her ability to be creative.