Defining a Full-Time Equivalent (FTE)
How does the IRS define a full-time equivalent employee (FTE)? Why is it important?
Simply put, it is critical that small businesses understand the definition of an FTE to comply with the new Affordable Care Act (ACA) that requires businesses with 50+ FTEs to provide health insurance. See our Post “The Affordable Care Act Basics” for more details on the latest compliance dates and requirements.
One way the government is using to enforce the ACA is through business taxes. The IRS helps businesses define the types of employees to qualify for ACA requirements. Behind closed doors the estimate is that IRS penalties will be steep (average up to $1 million) for non-compliant companies for 2015. It’s now even more important to find the right employment solution.
IRS.gov provides details regarding employees vs. independent contractors.
Employees: Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.
Independent Contractors: People such as doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers, or auctioneers who are in an independent trade, business, or profession in which they offer their services to the general public are generally independent contractors. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax.
But there are still a few considerations employers must take into account regarding a full-time employee to stay within compliance.
- Hours: Career Part Time Employees are regularly scheduled work from 16 to 32 hours per week but be careful because an FTE needs to work less than 30 hours per week.
- Duration: It is recommended that contracts stay under 6 months and no longer than a year to remain independent contractors.
Most small businesses work hard to make their businesses grow. The challenge of setting aside time to focus on categorization and hiring practices sets them off course. They just need the workforce to get the work done and done well. That’s why we created Nexus Catalyx.
Nexus Catalyx steps in to offer small growing businesses an opportunity to continue working with their independent contractors or hire the right staff for their business. We hire your independent contractors as our employees or find the right employee for your work and hire them as our own employee that work for you.
Competitive healthcare and salary packages are offered to stay competitive and fully ACA compliant. Businesses contract with Nexus Catalyx rather than directly with multiple independent contractors and you no longer have to worry about FTE classification or the IRS. We do it all for you.