Companies hire full-time employees and part-time employees for different reasons. A small business may need after-hours help, or a company might have a position that doesn’t require the employee to work a 40-hour week. Whatever the reason, it is imperative to understand the distinction between full and part-time employment—especially when it comes to classifying your employees for health insurance.
How Many Hours Is Full Time?
What is considered full-time employment? Forty hours? Anything over 35 hours? It really depends on who you ask. The Fair Labor Standards Act (FLSA) does not define full or part-time employment, rather leaving the classification up to the employer. But the Affordable Care Act (ACA) does. According to the IRS, in order to determine ACA coverage eligibility, a full-time employee works on average at least 30 hours per week or 130 hours per month. Employers can determine which employees are full time by one of two methods:
- The monthly measure method. Under this method, the employer determines full-time employment status on a month-by-month basis with the employee working at least 130 hours per month.
- The look-back measurement method. The look-back method uses a measurement period to determine full-time employment. The employer sets a stability period and measures hours worked during the preceding period. The look-back measurement method cannot determine full-time status for Applicable Large Employer (ALE) determination.
For statistical consistency, the Bureau of Labor Statistics (BLS) establishes full-time workers as those who work 35 or more hours per week and part-time workers are employees who work less than 35 hours per week. However, the BLS’s definitions are for statistical purposes only and not legal definitions.
The Difference Between Part Time and Full Time
According to the Department of Labor (DOL), it doesn’t matter whether an employee is classified as full or part-time to be protected under the FLSA. Every employee must be paid the minimum wage, as well as overtime for working more than 40 hours a week. Overtime is paid at one and one-half times the employee’s regular rate.
The biggest difference between part time and full time is the benefits each entails. Full-time employees typically receive employer benefits including:
- Paid Time Off
- Retirement Benefits
- Healthcare
According to the ACA, employers with 50 or more full-time employees are ALEs and must offer health insurance. Here’s how the ACA breaks it down:
- Small Employer (SE). SEs generally have fewer than 50 full-time employees and may be eligible to buy coverage through the Small Business Health Options Program. SEs with fewer than 25 full-time employees are eligible for a Small Business Health Care Tax Credit to cover the cost of providing coverage.
- Applicable Large Employer (ALE). ALEs have 50 or more full-time employees including full-time equivalents. ALEs need to issue statements to employees and file an annual information return reporting whether and what health insurance your company offered employees. ALEs are also subject to employer shared responsibility provisions.
Why Classification Matters for Compliance
If you’re not classifying your full and part-time employees correctly, you could face penalties for non-compliance with the ACA.
According to the ACA Times, penalty amounts for ACA noncompliance in 2020 are anticipated to be $2,570 for the 4980H(a) penalty and $3,860 for the 4980H(b) penalty. Penalties have risen annually since they were first established in 2014. Back then, noncompliance started at $2,000 for 4980H(a) annually and $3,000 for 4980H(b) annually.
The ACA’s Employer Mandate requires ALEs to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employers and their dependents. This coverage also must meet Minimum Value (MV) and be affordable for the employee, or be subject to IRC Section 4980H penalties.
Overtime Laws
Staying compliant with overtime laws is less about classifying workers as full or part-time and more about determining which are exempt from overtime and which are nonexempt. As previously stated, any nonexempt worker, whether full or part-time, who works beyond 40 hours in a workweek must receive overtime pay, or “time and a half” their usual hourly wage rate. These rules are set out in FLSA Section 13(a)(1) rules.
- A “non-exempt employee” is an employee who is covered by the FLSA Section 13(a)(1) rules dictating minimum wage and overtime pay. Non-exempt employees include most hourly workers, and they constitute a large portion of the workforce than exempt employees.
- An “exempt employee” is defined in Section 13(a)(1) as those workers “employed as bona fide executive, administrative, professional and outside sales employees.” There are also “certain computer employees” who are exempted from overtime and minimum wage coverage in FLSA.
Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements can face penalties of up to $1,000 for each violation. Willful violations of the FLSA may result in criminal prosecution and the violator fined up to $10,000. A second conviction may result in imprisonment.
Pros and Cons for Each
Even with rules and penalties in place for violating those rules, there are still pros and cons to hiring both full and part-time employees.
Part-Time Employment Pros:
- Most states don’t require part-time employees to receive benefits, reducing costs.
- Part-time employees are more flexible to schedule, including night and weekend shifts.
- Part-time employees can help meet short-term demands, like during increased sales and production times.
- Part-time employees still offer a wealth of knowledge and experience.
- Part-time employees can help companies increase diversity as you are able to hire more part-time workers vs. one full time.
Part-Time Employment Cons:
- Part-time employees may not be as committed, since they don’t receive benefits.
- Part-time employees don’t form as strong as relationships with co-workers and may feel disconnected from your company culture.
- Turnover may increase with part-time workers, especially if students or retirees are hired.
- Part-time employees may not have enough time to be as efficient and productive as full-time workers.
Full-Time Employment Pros:
- Full-time employees tend to be more engaged because they feel like part of the team.
- Full-time employees produce consistent work and understand their job roles better.
- Full-time employees have the time to be more productive.
- Full-time employees tend to be committed for the long haul.
Full-Time Employment Cons:
- Full-time employees cost more due to benefits. Health care and other indirect costs can add up to about one-third of an employee’s hourly wage.
- Full-time employees have more to do, more responsibility and more stress. Employee burnout is common amongst full-time employees.
- Full-time employees don’t have as much flexibility in their schedules, reducing their ability to balance their work and home lives.
- Full-time employees always receive payroll, even if the company is experiencing downtime.
After weighing the pros and cons, benefits can be found for hiring both part and full-time employees. If your business needs short term help, a part-time employee can be a perfect fit. But if you’re looking to build a strong employee base that will grow with your company, focusing on hiring more full-time workers will help meet your needs.
Some of the cons surrounding the hiring of part-time workers can be mitigated. For example, taking steps to include part-time workers in your company culture can help them feel like part of the team. Invite your part-time coworkers to company meetings and events. Engage with them on a regular basis, either online or in-person.
Maintain Compliance with Arcoro
No matter if your company runs on full-time, part-time employees or both, it is important to classify them correctly and accurately track their hours. Arcoro’s Benefits Management software helps employers automate oversight, apply deductions and give employees access to their own information. Built-in compliance features, like the Affordable Care Act Compliance module, takes the confusion out of which employees are eligible and provides reporting.
Arcoro’s time and attendance module is an easy-to-use time and attendance software and mobile app for accurate payroll, bulletproof recordkeeping, reduced labor costs and compliance reporting needs. The time and attendance software captures accurate time tracking data that directly syncs to your payroll software so FLSA compliance is achieved the first time. All data can be easily produced and referenced if any wage and hour disputes arise. Contact us to schedule a free demo.
