Is Your Company A "Large Employer" Subject to "Obamacare" -- Understanding the 50 full-time Equivalent Threshold

It has been well-publicized that, beginning in January 2013, employers with more than 50 full-time employees will be required to comply with "Obamacare" by either providing insurance benefits for their employees or paying a penalty.   There has been much speculation for example that the American economy will begin to resemble France, in which an inordinate number of employers stop hiring at exactly 49 employees to avoid the regulations that kick in at 50 employees. 

But if any employer wishes to follow this "49'er" strategy it needs to understand that Obamacare's definition of a "large employer" subject to coverage is actually based on a special definition of "full-time equivalent" employees.  In essence, the new law aggregates all part-time hours worked and treats 120 monthly part-time hours worked by any number of individuals as equivalent to one full-time employee.  For example, as explained by a report of the Congressional Research Service 

"Full-time employees” are those working 30 or more hours per week.  The number of full-time employees excludes those full-time seasonal employees who work for less than 120 days during the year.  [However] The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.

Employers may also be tempted to avoid application of the statute by obtaining services from independent contractors rather than employees.  In California, however, employer must be very careful to avoid the penalties and liabilities that can result from misclassifying employees as independent contractors.

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