When identifying full-time employees for employer mandate purposes, does an employer include employees from foreign countries?

To determine size for employer mandate and reporting purposes, an employer would only count the employees (and service hours) of those who receive U.S.-source income. They wouldn't include hours of service for which the compensation constitutes foreign-source income. So, if the employees were in Canada receiving Canadian compensation (i.e., Canadian payroll and taxes) and not U.S. income, then they aren't included in the count to determine whether the employee has 50 full-time-equivalent employees. But if a Canadian is working in the U.S. and, thus, receiving U.S.-source income, then that time counts as hours of service for employer mandate and reporting purposes.

This determination is important because, if an employer has more than 50 full-time employees, including equivalents, then the employer mandate applies. Once it's determined that the mandate does apply, the employer will be evaluated and potentially penalized for not properly following the law. That means the employer becomes responsible for offering coverage, ensuring that it's affordable and reporting their compliance to the IRS.

To summarize, the regulations state that an "hour of service" doesn't include any hour for services to the extent the compensation for those services constitutes income from sources outside the U.S. If an employee has U.S. source income, then they would need to be offered coverage and be included in the annual reporting (assuming the employer is subject to the mandate and assuming the employee is working 30 hours or more per week). Finally, this determination of whether the income is U.S. or foreign source needs to be made by the employer's tax counsel or CPA, since it could be construed as legal and/or tax advice (and since it matters for other reasons, such as employment tax and labor laws).