The Number of FTEs...

Q.  How is the number of FTEs determined for purposes of the credit?

1. The number of an employer's FTEs is determined by dividing (1) the total hours of service for which the employer pays wages to employees during the year (but not more than 2,080 hours for any employee) by (2) 2,080. The result, if not a whole number, is then rounded to the next lowest whole number. See Q/A-13 through 15 for information on which employees are not counted for purposes of determining FTEs.

An employee's hours of service for a year include each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer during the employer's tax year and each hour of paid leave (except that no more than 160 hours of service are required to be counted for an employee on account of any single continuous period of paid leave). To calculate the total number of hours of service which must be taken into account for an employee for the year, the employer may use any of the following methods: (1) determine actual hours of service from records of hours worked and hours for which payment is made or due, including hours for paid leave; (2) use a days-worked equivalency whereby the employee is credited with 8 hours of service for each day for which the employee would be required to be credited with at least one hour of service under Method 1; or (3) use a weeks-worked equivalency whereby the employee is credited with 40 hours of service for each week for which the employee would be required to be credited with at least one hour of service under Method 1.

Example 11.

1. For the 2010 tax year, an employer's payroll records indicate that an employee worked 2,000 hours and was paid for an additional 80 hours on account of vacation, holiday and illness. The employer counts hours actually worked.
2. Under this method of counting hours, Employee A must be credited with 2,080 hours of service (2,000 hours worked and 80 hours for which payment was made or due).

Example 12.

1. For the 2010 tax year, an employee worked 49 weeks, took 2 weeks of vacation with pay, and took 1 week of leave without pay. The employer uses the weeks-worked equivalency.
2. Under this method of counting hours, Employee B must be credited with 2,040 hours of service (51 weeks multiplied by 40 hours per week).

Example 13.

1. For the 2010 tax year, an employer pays 5 employees wages for 2,080 hours each, 3 employees wages for 1,040 hours each, and 1 employee wages for 2,300 hours. The employer counts hours actually worked.
2. The employer's FTEs would be calculated as follows:
1. Total hours not exceeding 2,080 per employee is the sum of:
1. 10,400 hours for the 5 employees paid for 2,080 hours each (5 x 2,080)
2. 3,120 hours for the 3 employees paid for 1,040 hours each (3 x 1,040)
3. 2,080 hours for the 1 employee paid for 2,300 hours (lesser of 2,300 and 2,080)

These add up to 15,600 hours

2. FTEs: 7 (15,600 divided by 2,080 = 7.5, rounded to the next lowest whole number)

Example 14.

1. For the 2010 tax year, an employer has 26 FTEs with average annual wages of $23,000 per FTE. Only 20 of the employer's employees are enrolled in the employer's health insurance plan.
2. The hours of service and wages of all employees are taken into consideration in determining whether the employer is a qualified employer for purposes of the credit. Because the employer does not have fewer than 25 FTEs for the tax year, the employer is not a qualified employer for purposes of the credit.