What is an FTE? What is a Seasonal Employee?

What is an FTE; what is a Seasonal Employee?

My friend, confidant, mentor and expert in the procedural ramifications of ObamaCare, Cathy Asleson, founder of Nordyeast, Inc. got to talking with me about some of the nuances of this legislation and our discussion quickly digressed into what the definition is of a ‘Full Time Equivalent’ (FTE) employee for IRS tax purposes. One of many reasons I appreciate time together with Cathy is our electrifying and challenging conversations. She keeps me on my toes continually pushing me to be a more astute student of the Internal Revenue Code.

After deliberate debate and further review it quickly became apparent to me that part of this precedent setting legislative action is to simply create long term jobs for the legal industry simply because there are so many unanswered questions. One on the menu today is how a FTE employee is defined (or not defined) as many risk taking job creators are preparing to manage human resources right up to the limits of this boundary.

The Shared Responsibility provisions of the Patient Protections and Affordable Care Act states that Applicable Large Employers with 50 or more FTE employees are subject to a tax penalty if any FTE employee receives a premium tax credit or cost sharing reduction to purchase health coverage through a Health Insurance Exchange. An employee is allowed a cost sharing subsidy if an “Applicable Large Employer” does not offer its FTE employees and their dependents the opportunity to enroll or if the offered coverage is not affordable.

“Applicable Large Employers” are defined as organizations that employee 50 or more FTE employees which is determined by the actual number of hours worked in the previous year. The federal government issued confusing written guidance that can “help” determine whether you are an “Applicable Large Employer” and subsequently must offer coverage or pay a penalty, however there are different approaches materializing for making this FTE determination. This blog post offers one method to help you comply but is untested in the courts. Nevertheless I will defend it until my last breath as being as reasonable as is ridiculously possible. So generally speaking this is what I intend to do EACH MONTH to calculate the number of FTE employees.

1. Count the total number of full time employees – people that work 30 hours per week or more – yes 30 hours per week is the standard – it makes me physically ill.

2. Count the total hours worked by all non full time employees for the month and divide that number by 120

3. Add the totals from point 1 and point 2 together and this will get you your FTE employee count for the month

If your FTE employee count for the month is 50 or more you need to next determine if the seasonal exemption applies as per IRS definition:

IF the sum of your FTE employees exceeds 50 for 120 days or less during the preceding calendar year and the employees in excess of 50 who were employed during that period of no more than 120 days are seasonal employees the seasonal exemption will apply and you “should” likely not be considered an applicable large employer. However a seasonal employee is defined as employees who perform labor or service on a seasonal basis as defined by the Secretary of Labor including retail workers exclusively during holiday seasons.

To add to the present ambiguity according to the IRS employers are permitted to use a reasonable good faith interpretation of what a season employee is until further guidance is produced. One point that is clear is that four calendar months may be treated as the equivalent of 120 days and that this period does NOT need to be measured as consecutive days. So …. This is fertile stomping grounds for the legal industry.

I for one am looking forward to defending people testing the limits of FTE employees in these regards as it will put my kids through college and buy me a retirement home in Malibu. The best advice I can give at this point is to stop growing your business when you get to 40 FTE employees and start a new separate and distinct entity.

Or if you are fortunate enough to produce a product or service with adequate profit margins and are about to break through the 50 FTE number then make the jump with gusto and consider yourself a “applicable large employer” and hope that your profit margins will grow faster than the costs will rise of the wildly corrupt medical services industry.

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John R. Dundon II, EA – President, Taxpayer Advocacy Services, Inc.