# Counting to 50: full-time equivalents

> The applicable large employer test, month by month: full-time heads, part-time hours over 120, a twelve-month average rounded down.

Source: https://lopifi.com/learn/does-a-startup-have-to-offer-health-insurance/counting-full-time-equivalents
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How do you count full-time equivalent employees for the ACA?** The applicable large employer test, month by month: full-time heads, part-time hours over 120, a twelve-month average rounded down.

The [ALE](https://lopifi.com/md/glossary/applicable-large-employer) test looks back. A company's status for a year depends on the average size of its workforce in the year before, so the count for 2027 is made from 2026's payroll records — and a company that crosses the line in mid-2026 may not be an ALE until 2027, or at all.

1. **Count the full-time employees.** Anyone with 130 or more hours of service in the month is full-time for that month.
2. **Convert part-time hours to FTEs.** Add the hours of everyone else, each capped at 120, and divide by 120. Fractions count; round each month to the hundredth if you like.
3. **Add them.** Full-time plus FTEs, for each of the twelve months.
4. **Average and round down.** Divide the year's total by 12 and round down to a whole number. 50 or more is an applicable large employer for the next year.

The count, month by month.

> “In determining the number of FTEs for each calendar month, fractions are taken into account ; an employer may round the number of FTEs for each calendar month to the nearest one hundredth.”

— [Treas. Reg. §54.4980H-2(b)(1), (c)(2)](https://www.law.cornell.edu/cfr/text/26/54.4980H-2), Counting full-time equivalents, and rounding the annual average down

**Scenario — Fifty without fifty.** Say Northwind grows to 44 full-time employees in 2027 and keeps 9 part-timers at 80 hours a month. Each month is 50: 44 plus 6 FTEs. The year averages 50, so in 2028 Northwind is an applicable large employer — though it never had 50 full-time people.

> **Seasonal staff.** A narrow exception helps retailers and harvest employers: if the workforce was over 50 for 120 days or fewer in the year, and the employees over 50 in that period were seasonal workers, the employer is not an ALE.

> “If— (1) any applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2) ) for any month, and (2) at least one full-time employee of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee, then there is hereby imposed on the employer an assessable payment”

— [IRC §4980H(a), (c)(2), (c)(4)](https://www.law.cornell.edu/uscode/text/26/4980H), Shared responsibility for employers regarding health coverage

**Exercise — Count to fifty: the ALE test.** Work out each month's count: the full-time employees, plus every other employee's hours — each capped at 120 — divided by 120, to the hundredth. The review adds the twelve months, divides by 12 and rounds down. Watch September: one part-timer worked 140 hours. At 130 or more they were full-time that month; either way they count as exactly one. Type it in the workbook at https://lopifi.com/playground.

## Where this page's rules come from

- [IRS — Determining if an employer is an applicable large employer](https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer) — Applicable large employer: 50 full-time employees, FTEs included, in the prior year (irs)
- [Treas. Reg. §54.4980H-2(b)(1), (c)(2)](https://www.law.cornell.edu/cfr/text/26/54.4980H-2) — Counting full-time equivalents, and rounding the annual average down (regulation)
- [IRC §4980H(a), (c)(2), (c)(4)](https://www.law.cornell.edu/uscode/text/26/4980H) — Shared responsibility for employers regarding health coverage (statute)

- **Track:** [Health & benefits](https://lopifi.com/md/learn/benefits)
- **Part of:** [Does a startup have to offer health insurance?](https://lopifi.com/md/learn/does-a-startup-have-to-offer-health-insurance) — 8 min
- **Terms taught:** [Applicable large employer](https://lopifi.com/md/glossary/applicable-large-employer), [Full-time equivalent employee](https://lopifi.com/md/glossary/full-time-equivalent-employee)
- **Previous:** [Does a startup have to offer health insurance?](https://lopifi.com/md/learn/does-a-startup-have-to-offer-health-insurance)
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