Defining Full-Time Equivalent (FTE) and Full-Time Employee

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Employers must calculate the number of FTEs, not just full-time employees, to determine if their businesses are subject to the ESR provision. However, even if ESR is applicable, they would only need to offer health coverage to full-time employees and their dependents.

For the purposes of this provision, full-time employees are defined as working an average of 30 hours per week, or 130 hours per calendar month.

FTE count is calculated using the hours of service for all employees (including seasonal workers) who were not full-time employees in a given month capped at 120 hours per employee, divided by 120. This total is added to the number of full-time employees to determine if an employer is an applicable large employer subject to ESR.

Note: All entities within a controlled group under Code Section 414(b), (c), (m), and (o) are taken into account when determining applicable large employers. How franchises will calculate FTE and full-time employees will depend on the structure of the business in question. Franchise clients should work with their tax and legal consultants for clarification on how this provision applies to their particular business.