Deciding on, and implementing, a human resource information system (HRIS) is a significant project. Once you realise that you’d like one of these systems for your company, your first question is probably how do i choose the right HRIS system? Choosing the right HRIS system is a complex process that involves comparing costs, features, benefits, implementation, risks, and time. If there were a single, perfect HRIS then we’d be recommending it to everyone. However, the reality is that choosing the right HRIS system is not black and white. Here are the questions we recommend you answer when you want to choose the right HRIS system:
The ‘who’ part of choosing the right HRIS system encompasses several categories. First, you’ll want to figure out who should be choosing an HRIS. Is there someone internally who has the bandwidth to research, analyze, and make this decision, or do you want to outsource the majority of the work? Additionally, who will implement the system, and who will manage it on an ongoing basis? Again, some companies choose to keep this internal, and others find it more cost effective and efficient to outsource.
An important part of choosing the right HRIS system is finding a system that does what you need. HRIS systems can perform a wide range of tasks including:
Job applicant tracking
Employee and contractor onboarding
Standard and custom reporting
Integration with payroll
Given the confidential nature of the information stored in your HRIS, you’ll also want to make sure you’re choosing a system that fits the privacy and security standards you follow.
For some companies, finding and implementing the right HRIS is an immediate need. They are losing time or money by the day because of inefficiencies, disorganization, or a substantial amount of manual work. For others, they have some time to find the right HRIS, with a goal of implementing it in 6 or 8 months. Your expected timeline will help inform your decisions when choosing the right HRIS.
Understanding WHY you’re trying to choose the right HRIS system is a key question to answer. Until you’re able to clearly articulate why you believe an HRIS will benefit your company, and what you hope to get from it, the task may seem overwhelming. Answering the ‘why’ question for yourself will guide the analysis and decision-making process. If you believe an HRIS will save you a significant amount of time (and it will if you choose the right one), then you also want to think about who will be managing the HRIS. Is it someone or a group that is very tech-savvy? Will they be able to handle most of the setup themselves? Or will you be training people who are not particularly comfortable with new software, making simplicity a prime consideration? Answering the questions of who, what, when, and why will give you a substantial start on choosing the right HRIS system. However, the choices can still be daunting and you may want to speak to a professional who can help you analyze your company’s goals, and walk you through some of the most important features and benefits of HRIS systems that may be a good fit. If you have questions about benefits administration, you can always reach out to us here
Are you thinking about switching your company’s insurance agencies? If so, you’re likely wondering if the burden of making a change will be worth the benefits. First, you’ll need to decide if a change is truly worthwhile, and then you’ll want to evaluate how complicated it is to switch a company’s insurance agencies.
In terms of analyzing whether it’s time to switch your company’s insurance agencies, here are some questions to ask yourself and your team:
Do I trust the insurance agency I’m with now? If you cannot trust a company, that’s a significant sign it’s time to move on.
Am I getting timely responses when I have questions? Excellent account support, which starts with consistent, on-time responses to inquiries, is a must-have. If you are not getting good service now, you should not expect that will improve in the future.
Are my prices fair? If you feel as though you’re paying too much, especially for insurance or service that’s subpar, it’s smart to consider switching your company’s insurance agencies. Often times companies choose the status quo because they think a change is too complex to manage, but those companies may be missing out on notable savings and benefits.
Have I had any unfair rejection of claims? If you find that you or your team have had a claim rejected, and you do not think the reasoning is fair, consider this a warning of similar issues to come. When you and your insurance agency are not seeing eye-to-eye, it’s common for this to be an ongoing problem and not a one time issue.
If the answers to these questions, or your own business instincts, indicate that a change may be in order, the next question for many is: How complicated is it to switch a company’s insurance agencies?
On one hand, you may think it will be fairly easy to switch insurance agencies because the new agency will be happy to have your business, and should help as much as possible with the onboarding process. On the other hand, there are potential pitfalls of switching your company’s insurance agencies that can make a positive change into a significant burden.
Here are some complications to look out for when you switch your company’s insurance agencies:
Lapsed coverage is a major risk. While it may sound relatively easy to drop one agency and start with another, if you don’t manage the timelines precisely, you risk a lapse in coverage. This mistake can range from annoying to catastrophic, depending on what happens during that lapse.
A mis-handled change can cost you money. Whether it’s a case of paying too much at the end of your contract, or being told that by your past agency that you owe additional fees, many business leaders find that one concern of switching a company’s insurance agencies is the question of ‘who’, ‘what’, ‘when’, and ‘how much’ in terms of cost.
Confusion and change in terms are possible. When you switch your company’s insurance agencies, you may run into problems where you’re not comparing apples to apples. Unless you’re well-versed in insurance terminology, policies, and contracts, you may end up with different coverage than you wanted or needed.
To mitigate the potential confusion and pitfalls of switching your company’s insurance agencies, you can choose to work with a partner who can ensure your interests are prioritized.
The partner will help you answer the most important questions to simplify the process of switching your company’s insurance agencies. They’ll work with you to understand your current coverage and think about what changes may be smart. The right expert can also listen to your frustrations about your current insurance agency, and can work out ways to ensure those same problems don’t arise after a switch. Having an expert in your corner allows you to have a ‘voice of reason’ to discuss concerns and goals with, knowing you’re getting sound advice instead of a sales pitch.
Benefit Leader is known for their ability to advocate for each company they work with and find those companies the best solutions in a wide range of areas. In addition to being experts, they will work with you to ensure every member of your team is educated about changes and improvements that are made.
Almost all employees have dealt with someone who works in human resources, but a lot of them do not actually know exactly what a human resources department does. If you work in human resources, some of these questions from friends or family members may sound familiar: Does that mean you hire people? Does it mean you help with benefits? Does it mean you deal with new employees? Does it mean you know employment law? Do you ever have to handle someone who’s angry? Of course the answers are yes, yes, yes, yes, yes, and a lot more! In our ultimate guide for human resources, we want to answer the question of what it means to work in human resources.
Lifecycle of Employment: HR at Every Step
From the work that is done before someone is hired, through their entire time at a company, and after they leave – for any reason – the human resources department is involved. While human resources departments fill a wide range of roles at different companies, here are some of the most common responsibilities of a human resources team:
Identify roles that need to be filled
Onboard new hires
Perform necessary administrative work
Conduct regular trainings
Create and support the company’s culture
Manage a process for feedback from and/or to managers and peers
Promote a healthy and satisfying work environment
Oversee employee transitions and terminations
Human Resources: Essential Skills and Why They Matter
When you’re looking to hire a human resources employee, you’ll likely consider the following factors.
College degree: Bachelor’s is often required, Master’s is often preferred
Field of study: while a degree matters, many companies consider it more important that a candidate’s degree is in Human Resources or Business Administration
Experience: relevant work experience can be one of the most important factors in hiring a human resources employee. Many of the necessary skills for these jobs cannot be taught in a traditional classroom, but are truly mastered through years of experience on the job.
Beyond education and work experience, there are some foundational skills that human resources employees will need. Here are what are often considered the most important of those skills:
Many people will tell you that the most important skill a human resources employee can have is the ability to communicate well. From written communication to giving presentations and managing sensitive conversations, communication skills are at the top of our list in this ultimate guide for human resources. Human resources team members create formal communications materials such as job descriptions, company handbooks, workplace policies, and offer/termination letters. They also need to be able to communicate well on-the-fly by writing challenging emails, arbitrating conflicts, and managing company culture.
In addition to communicating well, good human resources employees should be compassionate. It’s important to understand that showing compassion and giving in to demands are very different. In a human resources department, you should be prepared to encounter many different scenarios from people who dislike a coworker, want a raise, have complex ethical concerns, or need advice about managing workplace relationships. You will need to have difficult conversations and defuse situations, at which point the ability to be firm and helpful, while showing compassion, is critical.
Yes, being organized is important in almost any job, but it’s especially important for those in human resources. You’ll be working with many different employees and managers, regulations on a variety of levels that change often, more paperwork than most people ever have to oversee, and what may feel like an endless stream of requests coming across your desk. When the ball is dropped on someone’s benefits, hiring paperwork, yearly review, workplace complaint, or training, that can snowball into significant consequences. Your ability to stay organized online, on paper, and in all communications, is essential.
There may be no greater example than COVID-19 to demonstrate how flexible human resource employees need to be in their work. In a matter of weeks, companies across the world were changing the way they operated. People who were in crowded offices every day were now working remotely; training was needed on security, remote resources, and managing in new ways; the ability to boost employee morale and foster a close company culture changed drastically; workers needed guidance on managing quarantines and home-schooling during their workdays; new and changing rules for office space were published regularly, leaving many asking the HR department what their future office would look like. The pressure of the COVID-19 uncertainty is an example of how changes that affect many people personally and professionally, affect the human resources department on an additional layer because they have so many factors to mitigate.
Popular Jobs in Human Resources
Across industries, and even across companies, you’ll see wide variety in the names of the human resources’ departments’ jobs. Here are some of the HR job titles we tend to see regularly:
VP or Human Resources, Recruiting Manager, or Human Resources Director are often top-level HR positions. People applying for these jobs generally have a Master’s degree, and at least 10 years of experience in human resources. Those in top HR roles generally play a more strategic part than those in mid level roles. They likely oversee a team of other employees and managers, they may advise upper management on creating company culture and workplace policies, and they may handle the most sensitive and confidential of issues.
Mid-level HR jobs often include recruiting managers, human resource managers, and benefits managers. This level of employee may oversee the entry level human resource workers, and usually focus more on tactical management. People in these roles may have at least 5 years of experience working in human resources, and often have a Bachelor’s degree.
Entry-level human resources jobs include recruiters, generalists, assistants, and interns. Their focus is on the day to day operations of the HR department, and generally not on strategic decision making. These jobs are sought after by those who have recently graduated, or by those who are changing careers.
While human resources is a growing and dynamic field, there are certain aspects that you can rely on to stay consistent: like the importance of outstanding human resources services to the foundation of a company. If you have questions after reading our ultimate guide for human resources, specifically about how to outsource your human resource needs, learn more about what we offer at Benefit Leader.
Understanding and managing employee benefits can be complicated. There are so many benefits products and packages to choose from and, at the same time, you have to make sure you comply with state and federal regulations. To simplify these processes, most organizations, big and small, rely on employee benefits management software.
What is Employee Benefit Management System?
Employee benefits management software (sometimes called a ben-admin system) is used by companies to manage employee benefits as well as ensure compliance with state and federal regulations. A typical benefit management software will assist with medical insurance, pension & retirement, stock options, and leave. These systems automate processes and tasks to make it easier to manage your employee benefits.
Benefits management software can be used as a standalone system or integrate with other HR and enterprise software. Integration add-ons can cost anywhere from $1 PEPM (Per Employee Per Month) up to $5 PEPM depending on the software.
Ease vs Employee Navigator vs Bernie Portal vs GoCo
Let’s take a look at the four of the most popular benefit management administration systems for you to get an idea of which one is right for your business.
The Different Pricing Costs of Each System
Firstly, let’s look at a cost comparison between these four systems. Some or all of the cost will be paid for by your employee benefits broker. Although, most brokers will only offer one software platform to choose from.
Here at Benefit Leader, we don’t believe in the ‘one-size fits all’ mindset. We work with all benefits management systems.
This system has a great benefits management feature and basic HR management and record keeping. The employee onboarding can be added at a small monthly cost. However we believe your broker should pay for this, we certainly do. The more robust HR management features like PTO management can also be added for a small monthly fee between $2-$4 a month. This is usually paid for by the employer.
This software is very similar to Ease and is paid for by your broker. There is no additional cost to the employer, however, different brokers may not pay for all features. If you want to make sure you have all of the features Employee Navigator has to offer, it’s best to make sure your broker has at least the Elite Employee Navigator package.
Similar to both Ease and Employee Navigator, the basics are covered by your broker. If you want to add on PTO tracking, applicant tracking, time & attendance, they would each cost $5 per employee per month.
GoCo works a little bit differently. GoCo was built as an HR management system first, so they charge $5 per employee per month. This will include the basics of HR management, including onboarding, and document management. The benefits management feature is an add on for GoCo and costs an additional amount. The cost of the benefit management feature should be paid for by your broker.
Time-off tracking can be added for an additional fee, usually around $3 -$5 per employee per month.
All four benefit management systems offer similar systems, however, the starting packages may only provide the basics. Features such as software integrations, ACA forms, and payroll sync are usually charged as extras (per employee per month).
Payroll Integrations Costs
All four benefit management software systems integrate with many different payroll applications. Insurance carrier integration is generally quite comprehensive. The biggest difference between the four is whether or not they integrate with your payroll provider and what does that integration cost.
The integrations between payroll companies can sometimes be a different cost based on the payroll provider.
Ease integrates with ADP, Heartland, & Paylocity. The cost for each integration is between $2-$3 per employee per month depending on the payroll provider.
Employee Navigator integrates with ADP, Paylocity, Paycor, Benefitmall, Kronos, and more. Your broker will need to have the Elite package and there is usually a fee associated with the connection to each payroll provider.
Bernie Portal integrates with ADP, Paycor, and Proliant.
GoCo integrates with all payroll providers and this is one of their best features. They charge a flat fee of $3 per employee per month. They have an automatic electronic connection with many payroll providers, like ADP, Paylocity, Paychex, and even Gusto.
If they don’t have a direct feed to your payroll provider, they will manually take care of any payroll deduction changes for you at no additional cost.
Benefit Management and Payroll Integration Process
Regardless of what the different software companies and payroll providers say, integrating the two pieces is not always an easy task. This can take days or even weeks with many back and forth reporting and error corrections between the two.
This is why Benefit Leader has an integration team that does it all for you! We’ve managed the integration process many times and understand the nuances and difficulties involved. This is why we take care of the process entirely for our clients at no additional cost.
HRIS software is software used by the Human Resources department of companies and business to manage their employees. Different HRIS programs have different features and tools. In this article I’m going to talk about the different types of HRIS systems that are available and what you should look for in choosing the best software for your needs.
An HRIS will help keep all of your important employee files and information organized. As most HRIS’s save your data in the cloud, there is never a worry of misplacing the information. Instead of keeping employee data in a filing cabinet which can be destroyed, your data will be safe and accessible from anywhere. This is extremely helpful if your company has multiple locations or if you ever need to access employee info when you’re not in the office.
In today’s world when more and more companies are having employees work remotely, it’s best to keep employee data in the virtual world instead of the physical world.
What does HRIS Stand for?
HRIS stands for Human Resource Information System. However, you will find that colloquially people refer to it as an HRIS software or even HRIS system… even though you are essentially saying ‘system’ twice in a row. I’m guilty of it all the time.
Different Aspects of an HRIS
Different HRIS software will have different capabilities and features. It’s important that the software you choose meet your needs. Some of the different common features you’ll find in most software is:
Onboarding & Offboarding
Applicant Tracking System
Benefits Management System
One of the most important features of an HRIS is its ability to help your company manage the employee benefits. Every HRIS needs to have an employee benefits management feature.
Your HRIS will allow your employees to enter their information, as well as their dependent’s info, into the system. They will be able to view their benefits and plan options. This should include the cost as well as the plan summary.
A good benefits management system will help the employees in comparing their plan options. Once an employee chooses a plan, the system should also automatically fill out the correct forms for each insurance carrier.
When the software is filling out the insurance forms for the employees, instead of having your employees manually fill out the forms, this ensures that no data is missing and that the data is legible. I can’t tell you the number of times forms have to get sent back for clarification or because they were faxed or scanned over and they are no longer readable. A good benefits management feature solves that issue and saves businesses tons of time and effort.
The HRIS will also allow your employees to electronically sign their paperwork. With the ESIGN Act passed in 2010, every insurance carrier I’m aware of now allows e-signatures to be valid.
Your employee’s enrollment application will forever be saved in the HRIS as a document that can always be referred to. This is especially important if you have employees who decline or waive some or all of the benefit options offered by the company. You always want to have proof on file that an employee chose not to enroll if it ever comes up in the future.
Benefits Management and EDI Feeds
EDI stands for Electronic Data Interchange. An EDI Feed is an electronic link between your HRIS and the insurance carrier you work with. An EDI feed will allow your enrollments, changes, and terminations to flow directly from the HRIS into the insurance companies processing systems.
This completely eliminates the need to print out any forms (even if they’ve already filled out) and send them into the insurance company. It also increases the time enrollments are processed, as well as eliminates most errors that can happen when you’re manually having to send in your forms or enter the data manually on the insurance carrier’s online portal.
It’s important to know that not all insurance carriers allow an EDI feed, even if the HRIS is capable of generating one. If you have a small group health insurance plan, (health insurance for companies with less than 50 employees), your insurance carrier will likely not allow you to have an EDI feed.
However, most ancillary insurance carriers do have the capability to allow you to have an EDI feed. You should confirm with your HRIS before you make a purchase as to which companies their EDI syncs with.
New Hire Onboarding
When you’re a new hire, you are usually giving a large packet of information that you’re supposed to read, fill out, sign, and return back to your HR department. The list of documents is getting longer and longer these days, with new compliance requirements and regulations making that new hire packet bigger and bigger.
Your HRIS will allow your employees to fill out all of the paperwork electronically!
Your HRIS should include the ability for your employees to fill out their I-9 and W-4 forms. It should allow you to upload your company handbook, policies, and documents for your employees to review and e-sign all at the same time. Different systems will have different capabilities when it comes to what you can upload as your custom company documents. If your onboarding paperwork requires that the employee fill out forms that include more than their basic information, you may need to make sure the HRIS has a custom document feature.
A good HRIS will allow your employees to fill out all of their vital information, including direct-deposit information and emergency contact info. All of their data will be saved securely in the cloud for you or anyone you’ve authorized on your team to view later. You can also save your own documents and scanned copies of their identification verifications in the HRIS.
When an employee is onboarding, you want to make sure all compliance documents are also included. When that is done in an online system, you no longer need to print forms and you know it’s going to be the same documents for all new hires. After an employee has finished their onboarding paperwork, the system should automatically move them on to choosing their benefits online.
COBRA Software Integration
If you have 20 or more employees, you are required to offer your employees who are terminated or leave your company COBA continuation. Almost all companies in the United States hire a third-party administrator to handle their COBRA compliance. It’s cheap and a lot easier than trying to manage it in house.
Without a COBRA integration feature, for each employee that is hired and employee termination you’re going to need to contact your COBRA administrator and fill out the employee’s information so that they receive the proper COBRA compliance notices.
With an HRIS COBRA software integration, your HRIS will automatically notify your third-party administrator for you with all your employee’s info. You don’t have to lift a finger and your COBRA compliance will be taken care of!
HRIS With Payroll Integration
The goal of any HRIS is to make your life easier and eliminate double work. One of the easiest ways to eliminate double work is by integrating your HRIS with your payroll provider. For each employee being onboarded, that information will need to be inputted into your payroll provider. You will also need to enter the employee’s paycheck deductions for their portion of their benefit costs.
Having your payroll integrated removes the need for you to calculate the employee benefit deductions on your own and manually enter them into payroll. If there are any changes in the future, it eliminates the need for you to go back and make those changes again, since the HRIS should be updating the payroll automatically.
In 2020 most of the major payroll providers are allowing you to integrate with a few different HRIS’s.
For me and my clients, this is one of the most important features to consider when choosing an HRIS. Does it integrate with my payroll provider? If so, what exactly is the level of integration? Is everything automatic, or do I need to still generate a report each pay period and upload it to my payroll provider?
Some HRIS’s will have their own payroll build into the HRIS. When that is the case, you will pay an additional fee for the payroll portion of the software. As a rough estimate, it usually costs about $10 a month per employee per month for payroll.
List of Different HRIS Software Companies
When I first started in this business, there were less than a handful of HRIS companies available for business. There were almost no HRIS companies that a small to medium-size business could afford. These days there are hundreds of different HRIS options to choose from. While many of them are popular, it’s important to make sure that your HRIS meets your company’s needs.
Here is a list of the most popular HRIS companies, but not always the best software:
Getting a new HRIS in place is an exciting idea, but the process to get there is not always as exciting. It takes time and effort to make sure everything is set up properly for your company. If you’ve never set up an HRIS before, it’s important to make sure that the HRIS company you choose has the proper training in place if they aren’t the ones doing the implementation for you.
Some HRIS systems will do some or all of the work for you to set up your system. Some simply provide you with a login and setup is on you.
If you are a larger company looking for a highly sophisticated HR management software like Workday, there will be implementation costs associated with your software. I’ve seen Workday charge over $1,000,000 in startup fees for a large client of ours.
Make sure that you know what your HRIS setup is going to cost you wither in time or money or both.
ACA Reporting Software and Compliance
If your company has 50 or more full-time equivalent employees, you would be an Applicable Large Employer. It is absolutely vital that your HRIS software allows you to manage your ACA reporting and compliance.
There are two ACA features your HRIS needs to have:
ACA Variable Hour Tracking & Eligiblity
When you have employees that may or may not be considered full-time for ACA rules, you need to be able to track their hours each month. ACA hourly tracking feature will then calculate based on your look-back period rules, when and if an employee is considered a full-time employee and should be offered medical plan benefits. This is an absolute nightmare to try and track manually.
If you only have employees that are all full-time and only allow your employees to work less than 30 hours a week no matter what, this feature isn’t needed for your company.
ACA 1095 Reporting
The IRS requires that you keep track of all employees and their benefits status each month. This means you’ll need to track each month whether the employee was offered benefits, in a waiting period, declined an offering, and whether or not those benefits were affordable based on different safe harbor rules.
Manually trying to keep track of this each month or going back through your payroll and insurance bills is extremely time-consuming. From there you would need to then write the applicable code for each month of the year for all employees who worked for you last year.
A good HRIS will do all of the tracking and reporting for you. Sometimes the ACA feature is an add-on that will cost an additional monthly fee. Regardless, it is absolutely worth it. Employers are now seeing the ramifications of not filing or incorrectly filing their ACA reports with hefty fines from the IRS in the six-figures.
Who Manages the HRIS System?
Unless you are spending a large amount of money every month on your HRIS, your HR department will likely be the team that manages and keeps up to date the documents and HR software for your company.
The benefits management piece of your HRIS will need to be updated every year when the benefits renew. Your medical insurance policy will likely change to some degree each year and new documents and plan information will need to be updated. Depending on your arrangement with your employee benefits broker, this be managed annually by them. We recommend that your broker manages at the very least the benefits portion of your HRIS to ensure that your information is accurate and that all compliance is properly in place.
Each state will have different requirements and notices that need to be given to employees annually and when they enroll in a plan. There are also federal requirements required. For example, your HRIS should give the employees the Summary of Benefits and Coverage (SBC) for their specific plan. It’s required that employees be shown that document when they enroll in a plan. Building the SBC into the benefits enrollment process ensures that the employee gets the notices and allows them to refer back to it at a later date.
HRIS vs HCM
HCM stands for Human Capital Management. Human Capital is defined as the intangible assets of your worker’s skill and experience. Human Capital Management software is simply software that helps manage your workforce.
When using HRIS versus HCM, they can essentially be interchangeable at first glance. You’ll find that many people don’t see a difference between the two, whereas the HCM companies will generally advertise that there is a big difference.
When it comes to the companies that promote themselves as an HCM, their software platforms tend to have more features and abilities to manage the employees on a day to day or month to month basis. This can include workflows, employee reviews, and providing an environment to better assist teams within your company to work together on projects. You’ll find that HCM’s will focus more on the productivity of the company, rather than the HR information and management of the employees from a compliance and informational perspective.
Free HRIS Software
There are many different free HRIS systems out there. To be frank, they are all missing key pieces or extremely bare-bones in functionality and information. There are no free HRIS systems that are worth your time and effort. However, there are HRIS platforms that can be free to you.
What’s the catch? There isn’t one! I’ll explain…
One of the key pieces of an HRIS is its ability to help manage your company’s employee benefits. Good brokers around the country now realize that they need to help companies and their HR departments manage this process by providing the HRIS for them. These “free” HRIS software are being paid by the insurance agency. A good agency will even setup the benefits management side of the platform for you.
Different brokers will provide different HRIS systems, but they usually only provide one option to choose from. They don’t like the headache or have the man-power to learn and manage multiple systems.
How is Benefit Leader is different from everyone else?
Benefit Leader is a full-service employee benefits management and employee concierge service agency.
When it comes to an HRIS, we don’t believe in a one size fits all solution. Different companies have different needs and finding the right HRIS for your company is part of our job.
Not only do we provide free HRIS options, but we implement and fully manage those HRIS platforms on an ongoing basis for our clients. This takes the work off your shoulders, ensuring the benefits information is accurate and that your company is in compliance with all regulations. Benefit Leader manages all aspects of your benefits from employee questions, onboarding and offboarding, COBRA, and ACA compliance.
Stop doing so much work and let our trained professionals do it for you. It’s all we do and we’re pretty good at it.
When the Affordable Care Act (ACA) went into effect, it required Applicable Large Employers to offer their employees health insurance. To keep it simple, if you have 50 or more Full-Time Equivalent Employees, you are an Applicable Large Employer. Affordable Care Act. But what counts as a Full-Time Equivalent Employee (FTE)? Information from the IRS can sometimes be difficult to decipher, so we’ve tried to break things down a bit here to give you a better idea if your business will qualify.
What is a ‘Full-Time Equivalent’ Employee?
Standard Full-Time Employees
For the purpose of determining your status as an applicable large employer, a standard full-time employee is anyone working an average of at least 30 or more hours per week OR worked 130 or more hours in one month. Each person, regardless of how many actual hours they worked, are counted as one Full-Time Equivalent Employee (FTE). That is simple enough.
Calculating Part-Time Employees as ‘Full-Time Equivalent’ Employees
To get the number of ‘full-time equivalent’ employees that you had for part-time employees, you will combine the hours of service from all of the non-full-time employees for the month. Then divide those hours by 120.
March – Hours Worked
In the above example, you have 232 hours. We will divide 232 total hours by 120. This gives us a total number of ‘Full-Time Equivalent’ employees of 1.93. You would then add this to your count of the standard full-time employees to get your total FTE count for that month.
How Far Back do I count my FTE’s?
You will need to do this calculation for each calendar month of the prior year to determine if you are an ALE.
If you had an average of 50 or more FTEs last year, you are an ALE for the next year.
Each month you will count the standard full-time employees and then count the FTE employees based on the hours worked of your part-time employees. Add the FTE from part-time and the standard full-time employees together to get your actual FTE employee count for that month.
FTEs (based on Part-time employees)
Make sure to do this for each month of last year. We add the total FTE count for each month together and divide by the number of months in a year (12) to get our total average FTE employees for last year. If that number is 50 or more, you are an Applicable Large Employer.
Do Seasonal Workers Count in my Calculations?
Yes, they do. However, there is an exception for seasonal workers that can reduce your FTE count average.
It is very important to understand that this definition and exception only applies when determining if you qualify as an applicable large employer. I’ll explain how this works:
What is a Seasonal Worker?
A seasonal worker is a worker who performs hours of service for your company during certain times of the year, that are roughly the same each year. For example, when FedEx hires extra workers in November & December as more packages are being sent out. Or when a florist hires extra workers to handle the demand in February for Valentine’s day.
When to Count Seasonal Workers and When to Remove Them
Employers are allowed to exclude seasonal workers from their full-time equivalent count, but only if they have more than 50 full-time equivalent employees for 120 days or less per year.
Again, this exception is only valid when counting your employees to determine if you are an ALE.
Let’s look at an example of Halloween store that’s open year round.
Throughout the year they have 25 full-time employees.
Throughout the year they have 40 part-time employees, which equals 16 FTE employees.
In September & October, they hire an additional 60 full-time employees to help with the Halloween rush.
Each month they would have an average of 41 employees, except for September & October, which would have an average of 101 employees for those two months. When counting the average for the year, they would have 51 full-time equivalent employees and qualify as an ALE.
However, since they didn’t exceed 50 or more FTE employees for more than 120 days (just September & October), AND those employees that were over the 50 threshold were all seasonal, that can exclude the Seasonal employees bringing their total FTE count from 51 down to 41 and they aren’t actually an ALE.
Special Rules for Companies with Common Ownership
Companies With a Single Controlling Owner
Companies that have a common owner, or companies that are related to one another in another manner under the rules of section 414 of the Internal Revenue Code, are typically combined and then treated as a single employer for the purposes of determining whether you are an applicable large employer. For example, if you have two different companies, and one has 28 FTE employees and another has 30 FTE employees, each entity would be considered an ALE.
The IRS wanted to ensure that there wasn’t a loophole where companies could simply split themselves into separate entities to avoid being an ALE and subject to the new rules and regulations. As you can imagine, many companies that are right over 50 employees might like to figure out how to avoid being considered an ALE. To prevent that, they introduced common ownership rules.
Even if you split a large company into 4 or 5 separate entities with less than 50 employees, they would be combined when determining the total employee count and if they are an ALE. This also means that if you own 3 completely separate companies that have nothing to do with each other, they would still be combined when determining your employee count.
Companies Controlled by the Same Group of People
Many times a company will be owned by a group of people and there isn’t one single owner who has the majority share or majority control. You could have 4 people that each own 25% of a company. If that group of people also have controlling ownership as a group in another company, that company would be combined when determining the employee count.
This would be a controlled group.
If a group of people each owned a different percentage of different companies, but as a group still had control of those different companies, they would be considered a “Controlled Group” and would again be combined in determining the employee count.
The IRS will always lean towards combing a group of owners as a controlled group rather than separate entities for the employee count. This isn’t an area that you want to try and manipulate an attempt to not qualify as an ALE.
Those who are considered an ALE are subject to both the employer shared responsibility provisions and the employer information reporting provisions.
Don’t forget to Check Annually
Of course, there may be changes to your business and the number of employees that you have from one year to the next. This is why it is essential to reevaluate whether you are an applicable large employer or not. The results of the reevaluation will be based on the results of the average size of your workforce over the prior year.