How to count FTE employees
Full-time plus part-time hours — here's the IRS formula.
Counting full-time equivalent (FTE) employees determines whether your business qualifies as an Applicable Large Employer (ALE) under the Affordable Care Act. If you have 50 or more FTEs, you're an ALE and must offer health coverage that meets specific requirements or face penalties.
The IRS uses a straightforward formula: count your full-time employees (those working 30+ hours per week), then add the FTE value of your part-time employees. Here's exactly how to calculate it.
Step 1: Count your full-time employees
Start with employees who work at least 30 hours per week or 130 hours per month. These employees each count as 1.0 FTE. Include all W-2 employees in your count, regardless of their job title or employment classification.
Who counts as full-time
- Regular full-time staff. Anyone consistently working 30+ hours weekly.
- Seasonal workers employed 120+ days. If they work fewer than 120 days per year, you may be able to exclude them.
- Variable-hour employees averaging 30+ hours. Use their actual hours from the measurement period.
Don't include business owners, partners in a partnership, 2% shareholders in an S-corp, or independent contractors. The IRS specifically excludes these groups from FTE calculations.
Step 2: Calculate part-time employee FTEs
For employees working fewer than 30 hours per week, add up all their monthly hours and divide by 120. This gives you the FTE value for your part-time workforce.
Here's the calculation:
| Step | Example |
|---|---|
| Total part-time hours in January | 2,400 hours |
| Divide by 120 | 2,400 ÷ 120 = 20 |
| Part-time FTE count | 20 FTEs |
Round down to the nearest whole number after adding full-time and part-time FTEs together. If your total is 49.9, you have 49 FTEs, not 50.
Common calculation mistakes
Using the wrong monthly divisor. Always use 120 hours per month for FTE calculations, not 160 or 173. The IRS set 120 as the standard because 30 hours per week × 4 weeks = 120 hours.
Counting hours over 120 per employee. Cap each employee's monthly hours at 120 when calculating. An employee who works 150 hours still only contributes 120 hours to your calculation.
Including the wrong time period. Count hours from the previous calendar year to determine your current year's ALE status. Your current year's ALE status depends on the prior year's employee count.
Special cases
Controlled groups: Companies with common ownership must combine their FTE counts.
New employers: Use a reasonable projection based on your expected workforce if you don't have prior-year data.
Seasonal variations: If your workforce fluctuates significantly, calculate each month separately, then average across 12 months.
Understanding your FTE count helps you plan for ACA compliance requirements. Employers approaching the 50-FTE threshold often explore MEC plans to satisfy coverage requirements while managing costs. These plans meet the ACA's minimum essential coverage standard at a fraction of traditional insurance costs.
Track your FTE count monthly to spot trends before they affect your ALE status. Small changes in scheduling or hiring can push you over or under the threshold, triggering different compliance obligations for the following year.