If you don’t understand how FTE works, your business might miss out on health coverage, tax credits, or fall out of compliance altogether.
Covered California for Small Business isn’t just about how many people you employ — it’s about how many full-time equivalents you have on paper. And if you can’t calculate that number properly, you could be disqualified from small group health plans.
That’s why your FTE calculation for small business isn’t optional — it’s step one.
At Skyline Benefit, we help California business owners stay compliant, avoid mistakes, and find affordable group coverage based on accurate FTE counts.
What Is an FTE Calculation for Small Business?
FTE stands for Full-Time Equivalent, a measurement that standardizes your workforce by converting both full-time and part-time hours into one metric. It’s not about how many people you employ — it’s about how many full-time positions those hours represent.
This matters because:
- Under Covered California and ACA rules, you must have 100 or fewer FTEs to qualify as a small business.
- The IRS and Covered California use FTE numbers to determine group eligibility, access to tax credits, and reporting requirements.
How Does FTE Calculation Impact Health Insurance Eligibility?
Covered California for Small Business (CCSB) is open to employers with 1 to 100 FTE employees. If you’re even slightly over that threshold, you’ll need to shop in the large group market — often at higher prices and with more restrictions.
A correct FTE count ensures:
- You’re applying for the right type of group health plan
- You remain compliant with ACA and state rules
- You don’t leave money on the table in potential tax credits
Step-by-Step: FTE Calculation for Small Business in 2025
Here’s how to calculate your business’s full-time equivalent count:
1. Add Up All Weekly Employee Hours
- Count every worker — full-time, part-time, seasonal.
- Cap individual hours at 40 per week.
Example:
- 4 part-time employees × 20 hours = 80 hours
- 4 full-time employees × 40 hours = 160 hours
- Total = 240 hours
2. Divide Total Weekly Hours by 40
- 240 hours ÷ 40 = 6 FTEs
- Even with 8 employees, your FTE count is only 6.
3. Average Monthly (Optional for Yearly Reporting)
- If you’re submitting a yearly report, calculate each month and divide by 12.
New Business? Estimate FTEs Based on Expected Hours
If your company didn’t exist in the prior calendar year, don’t worry — you’re still eligible.
Instead, project how many FTEs you’ll employ based on:
- Anticipated weekly hours
- Employee schedules
- Budgeted labor plans
Your estimate must be reasonable and documented.
Common Mistakes When Calculating FTEs
Many employers get disqualified because they:
- Count headcount instead of hours
- Forget to cap at 40 hours per employee
- Don’t include seasonal or part-time workers
- Round up instead of using accurate math
Your FTE count is a legal metric — not just an internal estimate. A mistake could mean overpaying for health insurance or losing eligibility entirely.
What Happens If You Go Over 100 FTEs?
If your business crosses the 100 FTE threshold, you no longer qualify for Covered California for Small Business.
You’ll be categorized as a large group under ACA rules — which means:
- No small group tax credits
- Different plan options and pricing
- Potential penalties for non-compliance
Staying under 100 FTEs gives you access to simpler, more flexible coverage options through CCSB.
Need Help with FTE Calculation or Group Health Plans?
Skyline Benefit is an independent health insurance broker in Fullerton, CA that offers affordable and flexible group health insurance options. Selecting the best group health insurance plans can be overwhelming; our mission is to simplify the process and help our clients every step of the way.
Schedule a consultation today. Call us at: (714) 888-5112