If an employer has been a small employer but has recently increased the number of employees, when will the employer become subject to the employer mandate and Section 6056 reporting?

An employer is subject to the employer mandate and Section 6056 reporting if they have 50 or more full-time employees, including equivalents (FTEs), in the previous calendar year.

To calculate the employer’s size, an employer must first calculate the number of full-time employees for each month of the previous calendar year. A full-time employee is one who works on average at least 30 hours of service per week for a calendar month (or 130 hours per month). Please note that the employees of related employers with common ownership must be included in the calculation. Thus, all employer members of a controlled group would be included in this calculation.

If seasonal employees working less than four months (or 120 days) would cause an employer to have 50 or more FTEs, they may be excluded from the calculation. The four months/120 days need not be consecutive. Any employee working more than four months would not qualify for the seasonal exception and would need to be included in the calculation. An employer may also exclude any employees from the calculation who have coverage under TRICARE or the Veterans Administration. Additionally, any owners that are treated as self-employed individuals (such as partners in a partnership, more than 2-percent S corp shareholders and sole proprietors) are excluded.

Next, the employer will calculate the hours of each non-full-time employee, total them and divide by 120. The employer should not include more than 120 hours of any one individual in this step (because they would be considered a full-time employee and included in the initial step).

Lastly, the employer will add up the number of full-time employees plus the number of full-time equivalents and divide by 12. If the employer has 50 or more FTEs, they are subject to both the employer mandate and Section 6056 reporting for the following calendar year. The employer should not round up. If the employer’s calculation equals 49.9, they are still considered to have fewer than 50 FTEs.

Let’s look at an example. ABC Company has always been a small employer with fewer than 50 employees. In 2017, the company grew and hired many new employees. When completing the above calculation, the employer determines that they had 53 FTEs in 2017. They will be subject to the employer mandate beginning in 2018. They will also be subject to Section 6056 reporting in 2018, with the initial Form 1095-C forms due to employees and the IRS in first quarter 2019. They will not be subject to the reporting due in first quarter 2018.