The Corporate Transparency Act refers to the Employer Shared Responsibility definition of Full-Time Employee. The large filing exemption test’s first prong requires that the entity have “more than 20 full-time employees in the United States.”
The CTA refers to the same section of the Internal Revenue Code (Code) that is used to define “full-time employee” for the Affordable Care Act’s Employer Shared Responsibility (ESR) penalty, with one notable exception.1 The CTA excludes the section of the Code that requires companies to calculate the number of their “full-time equivalent” (FTE) employees.2 While FinCEN has yet to confirm, this means that companies only have to look at the service hours performed by their hourly and non-hourly employees for the CTA exemption.
Because the penalty for not filing a BOI report can be severe, any reporting company that hopes to rely on the large operating company exemption to avoid filing will need to make certain it is entitled to the exemption by examining closely each of its prongs, including the prong that counts the number of “employees.”
Definition of Full-Time Employee and Hour of Service
Under the Code’s relevant sections, a full-time employee is a common-law employee (which excludes leased employees, sole proprietors, a partner in a partnership, and 2% S Corp shareholders) who works an average of 30 hours of service a week or 130 hours of service a month. An hour of service is any hour for which an employee is paid or entitled to payment (e.g., vacation, illness, or leave of absence).
Hours of service for hourly employees are calculated by counting actual hours of service from records of hours worked and hours for which payment is made or due.
Hours of service for non-hourly employees can be determined by (1) counting actual hours of service from records of hours worked and hours for which payment is made or due, (2) using a days-worked equivalency, or (3) using a weeks-worked equivalency. Options (2) and (3) can’t be used if they substantially understate the employee’s hours of service.
A company can use different methods for different groups of non-hourly employees if the categories are consistent and reasonable. A company can change the method of calculating the hours of service of non-hourly employees for each calendar year.
See related article regarding Large Company Exemption
See related article regarding Affiliated Service & Control Groups