FTE stands for full-time equivalent and is used by businesses to calculate the total number of full-time hours worked within their business among all employees (both part-time and full-time). A full-time employee (working 30 to 40 hours per week) is equal to one FTE; a part-time employee (working 20 hours per week) is equal to 0.5 FTE.
What Is Full-time Equivalent (FTE)?
FTE is a unit of measurement that determines your total full-time employee count. One FTE is equivalent to an employee who works 30-40 hours per week. It is used to calculate whether a company is required to provide benefits under the Affordable Care Act (ACA). Employers can also monitor workloads for future budgeting and staffing with FTE.
Your full-time equivalent calculations must be accurate for IRS and Department of Labor (DOL) reporting. At 50 FTEs, you’re required by the ACA to provide health insurance to your employees.
How to Calculate FTE
FTE is calculated by taking the total number of hours worked by part-time employees in a week, month, or year plus the total number of hours worked by full-time employees, and dividing by the average number of hours worked by full-time employees during that time period. (For a year, that is 2,080 hours with 40-hour workweeks and 1,560 hours with 30-hour workweeks, which is considered full-time for ACA reporting).
Follow the steps below to calculate your FTEs:
1. Make a List of All Employees & Hours Worked
The first step in calculating FTE is to make a complete list of all employees. These are individuals who are paid using a year-end W-2 form. Do not include 1099 contractors. Also, do not include yourself as the business owner unless you are paid a salary and receive a W-2.
On the list, include two pieces of information: each employee’s name and the total number of hours that each employee works per week. (For the purposes of this calculation, include any approved leave, such as sick leave or paid time off, in the total weekly hours.) This information provides the basis for calculating your FTE.
An example:
Name | Total Hours Worked in a Week |
|---|---|
Jimmy | 25 |
Lynn | 40 |
Carole | 32 |
Marta | 15 |
2. Determine Which Employees Are Full-time vs Part-time
For the purposes of calculating FTE, most employers consider a full-time employee one who works between 30 to 40 hours a week. Although the DOL doesn’t define what a full-time employee is (it leaves that definition up to the employer), the IRS does, so make sure that as work roles change, you keep up-to-date records of your FTE employees.
In the chart below, because both Carole and Lynn are full-time employees, they would each be counted as one FTE. However, determining the FTE for Jimmy and Marta requires calculation.
Name | Total Hours Worked in a Week | Full-time (FT) or Part-time (PT) |
|---|---|---|
Jimmy | 25 | PT |
Lynn | 40 | FT |
Carole | 32 | FT |
Marta | 15 | PT |
3. Determine Your Total FTE
To determine your total FTE, add the total part-time hours worked plus the total full-time hours worked. From there, if your full-time hours are 40 per week, divide the number by 2,080. If your total full-time hours are 30 per week, divide the number by 1,560. This will give you your total FTE for all full- and part-time employees for the year. You can use the FTE total each week, month, or year to determine company growth. You can also use the FTE total to remain compliant with federal, state, and local labor laws that may be based on employer size, such as mandatory state sick time laws.
Understanding Your Business’s Available Hours per Week
To calculate FTE correctly, you’ll need to quantify your total weekly available work hours; it’s an important component of the calculation. Available hours per week is the number of hours your business considers standard work time multiplied by the number of employees you require to accomplish those related needs.
To determine this amount, ask yourself: what do you expect a full-time employee to work in terms of hours per week? Exclude overtime and unpaid lunch breaks. The answer should be between 30 to 40 hours a week per employee (when considering full-time).
Some businesses list this information in their employee handbooks or offer letters. For example, a business might state, “Our standard work hours are Monday to Friday from 8 a.m. to 5 p.m.” If employees take a one-hour lunch, then the available hours per workweek is 40 hours (8 hours a day x 5 days a week).
Here are some other examples:
- Four-and-a-half day workweek: Monday to Thursday, 8 a.m. to 5 p.m. (one-hour lunch), and Friday, 8 a.m. to 12 p.m. = 36 hours
- Four, 10-hour day workweek: Tuesday to Friday, 7 a.m. to 6 p.m. (one-hour lunch) = 40 hours
- Four, 8-hour day workweek: Monday to Thursday, 8 a.m. to 5 p.m. (one-hour lunch) or Tuesday to Friday, 8 a.m. to 5 p.m. = 32 hours
- Five-day workweek: Monday to Friday, 8:30 a.m. to 4:30 p.m. (30-min. lunch) = 37.5 hours
Actual Hours Worked per Week
You’ll also need to know the actual number of weekly work hours to complete the FTE calculation. Actual hours worked per week is the exact number of hours an employee worked. However, you’d want to average those hours over a time period such as four months. This ensures that you’re not getting a skewed result based on a higher or lower number of hours worked in a week than typical.
If you run payroll weekly, you’ll likely have this data available. But if you pay monthly or semimonthly, you may have to divide the number of available work hours in the month by the number of hours the employee worked, on average, to calculate your actual FTE.
Using time tracking software will allow you to run a historical report based on employee work history and status to gather the average hours worked using custom fields. In addition, some provide small business employers with a range of scheduling options to ensure their staff hours are within the correct range.
FTE Calculation Example
Using the steps above, we’ve provided two ways to calculate FTE: weekly count and annual count.
Weekly Count Example
Part-time Employees | Full-time Employees | |
|---|---|---|
No. | 4 | 32 |
Hours Worked (Week) |
| 40 hours each (based on an individual full-time workweek) |
Steps |
Your 36 part-time and full-time employees are equal to 33.5 FTE. | |
Annual Count Example
Part-time Employees | Full-time Employees | |
|---|---|---|
No. | 10 | 45 |
Hours Worked (Week) | 6,700 hours total | 1,820 hours each (based on an individual 35-hour full-time workweek) |
Steps |
Your 55 part-time and full-time employees are equal to 48.68 FTE. | |
How FTE Is Used in Businesses
FTE calculations can help your business make informed hiring, budgeting, and workforce planning decisions. They can also help you determine if you qualify for certain tax credits and if you are legally obligated to offer specific benefits to your employees.
Ensuring FTEs Are ACA-compliant
The Affordable Care Act (ACA) states that employers must offer affordable health insurance that meets minimum standards to at least 95% of their full-time employees and their dependents. This applies to companies with 50 or more FTE employees.
Follow the tips below to ensure your small business is meeting these requirements:
- Track employee hours: Continuously tracking your employees’ hours helps you monitor their full-time status.
- Use the look-back method: This method determines the average hours worked by employees over a period of time, such as the prior year.
- Offer healthcare: Although it is not required of companies with fewer than 50 FTE employees, offering healthcare to your employees can help attract and retain top talent.
- Use outsourcing services: A professional employer organization (PEO) can help with ACA compliance by handling payroll, benefits, and compliance reporting.
Using FTE to Set Part-time Salaries
You can use FTE to help you determine a fair wage for your part-time workers. For example, if a full-time employee working 40 hours per week makes $50,000 per year in their role, then a part-time worker who works 20 hours per week in the same role should make $25,000 per year. Continuing that, an employee who works 30 hours per week in the same role should make $37,500.
- $50,000 per year ÷ 2,080 (40 hours per week equivalent) = $24.04
- $24.04 x 1040 (20 hours per week equivalent) = $25,000
- $24.04 x 1560 (30 hours per week equivalent) = $37,500
FTE Frequently Asked Questions (FAQs)
To determine your monthly FTEs, simply divide your total working hours per month (both full-time and part-time employees) by 173.33 (2,080 12). For example: 3,260 173.33 = 18.81 FTEs.
Simply multiply the number of hours worked per day by the number of days worked per week. For example, if an employee works 6 hours per day, 4 days per week, then to calculate their working hours per week would be 6 x 4 = 24. If an employee works different hours per day, then you would need to add their hours per day for the week to get their total working hours for the week. For example: 7 + 5 + 5 + 7 = 24.
One FTE is equivalent to one full-time employee. Determining one FTE is based on the number of hours considered full-time in your business. Most businesses rank full-time employees as those who work 40 hours per week. However, according to the ACA, any employee who works at least 30 hours per week is considered full-time.
Headcount is the total number of employees on your staff, no matter the number of hours they work. FTE is the total number of full-time equivalent employees on your staff. For example, if you have four part-time employees and 10 full-time employees, your headcount is 14, but your FTE is 12.
