To calculate full-time equivalents for part-time employees under the ACA, add up every part-time worker’s hours of service for the month, cap each individual at 120 hours, divide the total by 120, and add the result to your count of actual full-time employees. That combined monthly number, averaged across the prior calendar year, is what determines whether your business hits the 50-employee threshold for Applicable Large Employer status.
The calculation is straightforward arithmetic. The tricky parts are knowing which hours to count, which employees to include, and how to read the result once you have it.
The FTE Formula Step by Step
You run the calculation month by month, because ALE status is based on monthly averages over a full calendar year.
Step 1. Identify your part-time employees for the month. A part-time employee, for this purpose, is anyone who had fewer than 130 hours of service that month. Full-time employees (130 hours or more) are counted separately and don’t go into the FTE math.
Step 2. Add up their hours, capping each person at 120. If a part-time employee logged 125 hours, you count 120. The cap is applied to each individual before you total anything, and it prevents one near-full-time part-timer from distorting the result.1Office of the Law Revision Counsel. 26 USC 4980H – Shared Responsibility for Employers Regarding Health Coverage
Step 3. Divide the capped total by 120. That gives you the FTE count for the month.2Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act
Step 4. Add FTEs to your actual full-time headcount. Count every employee who had 130 or more hours of service that month, then add the FTE figure from Step 3. That combined total is your workforce size for the month.
Note the two different numbers in play: 130 is the hours threshold that defines a full-time employee, while 120 is the divisor (and per-person cap) in the FTE formula. Mixing them up is one of the most common errors employers make with this calculation.
A Worked Example
Say your business has 35 full-time employees in March. You also employ 24 part-time workers: 10 worked 80 hours each, 10 worked 100 hours each, and 4 worked 125 hours each.
First, apply the 120-hour cap. The four part-timers who logged 125 hours each get counted at 120. Then total the capped hours:
(10 × 80) + (10 × 100) + (4 × 120) = 800 + 1,000 + 480 = 2,280 hours.
Divide by 120: 2,280 ÷ 120 = 19 FTEs.
Add the FTEs to your full-time headcount: 35 + 19 = 54 for March.
March is above 50, but that alone doesn’t settle your ALE status. You’d need to run the same calculation for every month and average the results.
Which Hours Count
An hour of service is any hour an employee is paid or entitled to payment, whether they actually performed work or not. Paid vacation, holidays, sick days, jury duty, and military leave all count.2Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act If a part-time employee took a paid sick day, those hours go into your totals.
Pull hours from your payroll system, not from schedules. Actual paid hours often differ from what was scheduled, and the calculation depends on what was actually paid.
Who’s Excluded From the Count
Some people on your payroll don’t factor into the calculation at all. Sole proprietors, partners in a partnership, S corporation shareholders who own at least 2 percent of the company, and certain leased employees are excluded from the employee count for ALE purposes.2Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act Their hours don’t go into the full-time headcount or the FTE calculation.
Turning Monthly Numbers Into ALE Status
A single month above 50 doesn’t make you an Applicable Large Employer. ALE status is determined by adding your combined full-time-plus-FTE totals for each of the 12 months in the prior calendar year and dividing by 12.3Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer If the average is 50 or more, you’re an ALE for the following calendar year.
Your 2025 workforce data determines your ALE status for 2026. A busy summer with slow winter months might average out below 50 even if some months spiked well over. On the other hand, if your monthly totals hover consistently at 48 or 49, a modest bump in part-time hours during the holidays can tip the annual average over the line.
Businesses that weren’t operating for the full prior year use a different rule: the IRS looks at the average number of employees you reasonably expect to employ during the current year.1Office of the Law Revision Counsel. 26 USC 4980H – Shared Responsibility for Employers Regarding Health Coverage
The Seasonal Worker Exception
If your workforce only exceeds 50 full-time employees (including FTEs) for 120 days or fewer during the calendar year, and the workers who pushed you over that line were seasonal, you’re not treated as an ALE.4Internal Revenue Service (IRS). ACA and Employers: How Seasonal Workers Affect Your Workforce Size A seasonal worker is someone who performs labor on a seasonal basis, including retail employees hired only during the holiday season.
The exception is narrower than it looks. It only applies when seasonal hires are the reason you crossed 50 in the first place. If your year-round workforce already sits at 50 or more, the exception doesn’t help, because you’d meet the threshold without the seasonal workers.
Common Ownership: Multiple Companies Get Combined
Businesses under common ownership or otherwise related under Section 414 of the Internal Revenue Code are combined and treated as a single employer for ALE purposes.3Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer Owners who run several small companies often miss this.
If you own 100 percent of two companies, one with 30 full-time employees and one with 25, the combined 55 makes both companies part of an ALE. Each is an “ALE member” subject to the mandate, even though neither would qualify standing alone.3Internal Revenue Service. Determining if an Employer Is an Applicable Large Employer
Practical Tips for Getting the Numbers Right
Run the calculation every month, even if you’re confident you’re well below 50. Workforce sizes creep up quietly, and finding out in January that you were an ALE for all of the prior year leaves no room to retroactively offer coverage.
Keep part-time hours recorded per employee, per month. The 120-hour cap is applied at the individual level, before you total anything. If you sum all part-time hours first and then try to apply a cap, you’ll overcount every time.
Remember what the FTE figure is for. It only answers the threshold question of whether you’re an ALE. Once you’re across the line, everything downstream (which employees you must offer coverage to, and any penalty exposure) turns on actual full-time employees, not FTEs.