FTE stands for full-time equivalent (not full-time employee) and translates the total hours worked by part-time employees into the number of equivalent full-time employees. Tracking FTE is a typical way employers monitor employees’ workloads so future budgeting and staffing can be properly planned for. To calculate FTE you have to know how many full-time and part-time employees you have, and the average number of hours they work. You can then determine the equivalent number of full-time workers you employ.
The Importance of Accurately Calculating FTE
Keep in mind that an FTE calculation is used to determine the size of your company for various reasons. For instance, once you reach 50 FTEs, you’re required by the Affordable Care Act (ACA) to provide health insurance to your employees, and the Family Medical Leave Act (FMLA) becomes relevant, etc. It is essential that you ensure that your FTE calculations are accurate and remain accurate over time. Although it’s not too difficult to calculate, it is very important to do so for IRS, Department of Labor (DOL) and Affordable Care Act (ACA) purposes
The primary reason we see many small businesses calculating FTE is to make sure they are compliant with ACA benefits rules. The ACA requires employers to offer group health benefits when they have 50 or more FTEs.
Payroll providers, like Gusto, can help you track employee work time, manage and calculate FTE, and also manage health benefits at a per-employee cost. Gusto is offering its Core plan at a rate of $39/month plus $6/month per employee.
Below are the four steps to calculate FTE and a free calculator to help you verify that your counts are correct:
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 average number of hours that the employee works per week. (For the purposes of this calculation, include any approved leave, such as sick leave or paid time off in the average weekly hours.) This information provides the basis for calculating your FTE.
An example is provided below:
Average Weekly Hours Worked
2. Decide Why You Need to Calculate FTE
There are many ways to calculate FTE and you may use them for different reasons. For example, you may want to obtain a headcount at the start of each quarter or year to see how much your company has grown. You may be planning to add staff and need to know how many people to add based on the workload.
Or, you may be checking to determine whether you’re required to abide by a particular labor law such as Title VII of the Civil Rights Act or ADA that kicks in when you reach 15 employees.
Also, if your business is partnering with your employees through the Small Business Health Options Program, or SHOP, you should know that the SHOP marketplace is open to employers with 50 or fewer full-time equivalent employees (FTEs). And that system will consider full-time employees as those who work an average of at least 30 hours a week for a minimum of 120 days a year. SHOP is a wonderful resource for your employees, pertaining to benefits, but employers must first know the FTE of each employee.
3. Determine Which Employees Are Full-Time vs Part-Time
For the purposes of calculating FTE, most employers consider a full-time employee as one who works between 30-40 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 a little math which we’ll cover below in our examples.
Average Weekly Hours Worked
Full-time (FT) or Part-time (PT)?
If you’re trying to determine which are full-time and part-time for ACA purposes, use 30 hours per week as the criteria for a full-time employee. If you’re calculating FTE for a different purpose and consider 40 hours to be full-time in your organization, you can use that as your criteria.
Here are two examples to help you determine what’s considered full-time for your FTE calculation:
30-Hour a Week Example:
For example, if full-time in your company is 30 hours, then every employee who works 30 hours a week or more is considered full time. Two workers working 15 hours weekly would equal one FTE. This definition is the most commonly used to determine how many FTE you have for ACA purposes. Both Carole and Lynn in our example above would be full-time employees under this example.
40-Hour a Week Example:
If a normal full-time schedule at your company is 40 hours a week, then 40 is the number of hours used to consider if an employee is full time. In that case, it would take two 15-hour a week workers and one 10-hour a week worker to equal one FTE (15 + 15 +10 = 40 hours).
This example is one you might use when determining how many workers you’ll need for a project, or to estimate staffing levels required for business growth. In fact, if 40 constitutes full time, you might consider Carole a part-time employee at only 35 hours a week.
Salaried employees who work full-time or are expected to work a full-time schedule (even if they don’t report their actual hours each week) are considered full-time employees in both cases.
According to the IRS and the ACA, part-time employees work fewer than 30 hours a week or less on average. This could be an employee who works 20 hours a week, an intern who works one day a week, or an employee who is on-call or only works the weekends. It could also be temporary staff that work an irregular schedule—perhaps 30 hours one week and 12 hours the next.
What’s important is that “on average” they work under 30 hours a week. To get a good estimate, it’s best to average hours over a 90 or 120-day timeframe. In addition, if you’re calculating FTE for ACA purposes, you’d only include the part-time person in your calculations if they worked 120 days or more per year. In our example, Jimmy and Marta would be considered part-time employees.
4. Determine Your Total FTE
Depending on the reason you’re calculating FTE and the calculation example you use below, the result of your calculation will be a number that represents your FTE. You can use the FTE total each month, quarter 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 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. Exclude unpaid lunch breaks. The answer should be between 30-40 hours a week per employee (when considering full-time). Note that if this is getting confusing, hang in there, we unpack these details a little more as we continue on.
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. – 5 p.m.” If employees take a one-hour lunch, then the available hours per workweek is 40 hours (eight hours a day x five days a week).
Here are some other examples:
- Four and a half day workweek: M-Th 8 a.m. – 5 p.m. (one-hour lunch), F 8-12 = 36 hours
- Four, 10-hour day workweek: T-F 7 a.m. – 6 p.m. (one-hour lunch) = 40 hours
- Five day workweek: 8:30 a.m. – 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, to get an average-hours worked per week, 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 this week than what’s typical.
If you run payroll weekly, you’ll likely have this data available. But if you pay monthly or semimonthly as examples, 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.
Hours Worked Per Week Example
For example, one part-time employee who worked 10 hours this week would be the equivalent of 0.25 FTE. Here’s the math.
Total hours full-time workers work in a week = 40
Total hours a part-time worker worked in a week = 10
40/10 = 0.25 FTE
In other words, your one part-time employee is the equivalent of 0.25 full-time workers.
Hours Worked Per Month Example
For example, 10 part-time employees who each work 48 hours a month in total would be the equivalent of 2.5 FTE. Here’s the math.
Total hours full-time workers work in a month = 120
Total hours part-time workers work in a month = 48
120/48 = 2.5 FTE
In other words, your 10 part-time employees are the equivalent of 2.5 full-time workers.
The Society for Human Resource Management (SHRM) provides this additional clarification as an example:
“FTEs are about hours worked more than they are about numbers of employees. You could have four employees and only one (1) FTE. Four 0.25 employees would be 1.0 FTE. John, Mark, Mary, and Sue could each work 10 hours per week and the total would be 40 hours worked or one FTE.”
If you use a payroll provider like Gusto, you will be able to run a report based on employee work history and status to gather this information using custom fields. In addition, Gusto provides small business employers with a range of employee benefits options, including healthcare insurance for their staff.
FTE Calculation Examples
Below are three ways to calculate FTE based on the reason you want to use the FTE results:
Easy Estimate of FTE for General Purposes
If you want a simple way to determine how many FTEs are currently employed in your business, you’ll only need a few pieces of information including how many hours part-time employees worked vs how many hours full-time staff worked (your standard or actual hours). This type of calculation is best if you want to know how big your company is, or to see how it has grown.
Example of an Estimate for General Purposes
In this example, you have four part-time employees and 32 full-time employees. You have 36 total employees. That’s your headcount. Now, here are four steps showing how the math works to calculate how many FTEs you have:
- Add up all the hours part-time employees worked last week. Example: Four employees worked 60 hours last week. One worked 12 hours, two worked 15 hours and one worked 18 hours. (12+15+15+18 = 60). We’ll use 60 hours for our answer.
- Determine the number of hours full-time employees are paid for. Or, determine what constitutes full-time at your company. (This number is typically between 30-40 hours a week.) We’ll use 40 hours as our answer, since that’s pretty common.
- Divide the top number by the bottom number (60 hours/40 hours = 1.5 FTE). Therefore, the four part-time employees are equivalent to one and a half full-time workers. We’ll use 1.5 FTE as our answer.
- Add the part-time FTE (1.5) to the full-time workers (32) to come up with our total FTE. (32+1.5=33.5). Therefore, we have 33.5 FTE, in our example.
In this example, your 36 employees are equal to 33.5 FTE.
Annual Count of FTE
If you want to know how many employees you had over a period of time, say one year, so that you can compare this year to last year, you’ll need a bit more data. You’ll need, for example, a total of all the hours worked by all part-time employees throughout the year, and then will need to know what the comparative full-time hours would have been.
Example of an Annual Count
If your company considers 40 hours to be a full-time workweek, then annual full-time hours would be 2,080. (40 * 52 weeks= 2,080.) Therefore, 2,080 is the average number of work days in a year for an employer open 52 weeks a year.
Here are other examples of average work weeks resulting in a different number of hours per year:
- 30 hours a week = 1560 hours a year (30 * 52 = 1560)
- 32 hours a week: 1664 hours a year (32 * 52 = 1664)
- 35 hours a week: 1820 hours a year (35 * 52 = 1820)
- 38 hours a week: 1976 hours a year (38 * 52 = 1976)
You will need some kind of report to tell you how many hours part-time workers (those who average under 30 hours a week) worked throughout the year. Let’s say you had 10 part-time workers, who worked a total of 6700 hours a year. (On average, each worked 670 hours this year).
Here’s how the math would work in four steps for a company with 55 employees, 10 of which are part-time.
- Determine what your full-time (compensable) hours are per year for a full-time employee. For example, if your company expects a 35 hour workweek, and compensates employees 52 weeks a year, then full-time hours per year would be 1,820/year (35 * 52 week = 1820). Therefore, we’ll use an example of 1,820 hours.
- Sum all hours worked by all part-time employees for that same year. For example, if your company has 10 part-time employees who in total worked 6700 hours in the year, then 6,700 hours is the value we’ll use.
- Divide the bottom number by the top number. The total hours workers could be paid for is 1,820/year. Part-time employees worked 6,700 hours in total. Therefore, those 10 employees equate to 3.68 full time employees (6,700/1,820 = 3.68). Part-time employees equal 3.68 FTEs.
NOTE: (You could also use the average of 670 hours worked a year by part-time employees to determine how much of an FTE each part-time employee is on average and multiply that times the number of part timers (670/1820 = 0.36 FTE; 10 part-time employees x.368 FTE each=3.68 total FTE)
- Add the number of full-time employees to the part-time FTEs. For example, you had 45 full-time employees and part-time workers equaling 3.68 FTEs your total would be 48.68 FTEs (45 + 3.68 = 48.68). You, therefore, have 48.68 FTEs in total
In this example, you have 55 total employees (your headcount), but only 48.68 FTEs.
ACA Compliant FTE Count
Since ACA health benefits are required to be offered by any employer who has 50 or more FTEs, the calculation becomes more specific. For example, only employees who have worked 120 days or more are counted. In addition, you have to provide an average based on four month’s worth of hours worked data.
Additionally, ACA considers full-time to be 30 hours a week. Therefore any employee who works 30 or more hours a week, or 130 hours a month on average is considered a full-time employee. That affects your calculations.
Here’s a four-step example showing how the math is done for that ACA calculation. In this example, you have 35 full-time and 12 part-time employees.
- Identify all current full-time employees who worked for the entire past 120 days (four months), and averaged 30 more hours a week during that time. (Each full-time employee is equivalent to one FTE.) For example, if you had 35 full-time employees, then that equals 35 FTE.
- Identify all current part-time employees who worked during that same 120 day time frame. (Don’t count part-time employees who are no longer working, or full-time employees who just started and haven’t yet worked for four months.) Let’s say the number is 12 who fit those criteria.
- Count the average hours worked by each part-time employee over the four-month period and divide it by all hours full-time employees would have been compensated for that same pay period (in this case 30 hours a week or 120 a month).
Let’s say that over the past 120 days one ACA FTE would have been compensated for 130 hours a month. Thus, they’d work 520 hours over four months. (130 x 4 = 520 hours.) You have 12 part- time employees who in total worked 2500 hours in that same time frame, averaging 208.3 hours each over four months (2500/12/4=208.3).
Each part-time employee averages 0.40 FTE (208.3/520=0.40). Since there are 12 of them, they equal 4.8 FTE (12 x 0.40= 4.80) 4.8 FTE.
- Add the two FTE sums together, which means add 4.8 FTE to your full-time employee count of 35. (35 + 4.8 = 39.8). Note that 39.8 FTE is less than your headcount total of 47 employees.
Therefore in this example, even though having 47 employees seems like it is approaching the ACA threshold of 50 FTEs, your actual FTEs are under 40. Therefore, you’re still far from needing to provide mandatory health benefits to employees.
If you’re calculating data for ACA purposes, which uses 30 hours as a standard workweek calculation, then the total you get will vary from some of the other uses such as counting FTE requirements for staffing growth.
In other words, your business may have a 38-hour workweek schedule which works for you, the DOL, and general labor law purposes. But, for the purposes of ACA, you’ll be required to calculate FTEs based on 30 hours or more, equaling one FTE. That would result in your FTE count being slightly higher for ACA purposes than for business budgeting or general headcount uses.
Frequently Asked Questions (FAQs) About FTEs
Even after reviewing this resource, we have no doubt that you may still have several questions about FTE and how (and why) it works the way it does. We want to encourage you to utilize the linked resources as you develop this part of your business planning. Below are helpful Q&As that we have encountered from readers in the past.
What is 0.5 FTE?
Often, when describing the number of workers a company has, or the number of open positions available, a company will list part-time openings as 0.5 FTE, or some other fraction of what a full-time employee would work.
An easy way to remember FTE is that it’s the typical full-time hours a full-time employee would be working in that firm. For example, if full-time employees in your company work 40 hours a week, then a 0.5 FTE position or employee in your company would be expected to average 20 hours a week.
Who Uses the Term “FTE”?
FTE is an acronym typically used by HR staff and project managers. HR staff use the term to explain to their management team how many full-time-equivalent employees are working for a company. They may also use FTEs to give the budgeting team an idea of how many new hires are planned for next years’ growth.
For instance, businesses employing part-time staffers, like a restaurant, theme park, or a service company may have many employees but few FTEs.
Project managers use FTEs when they’re trying to budget for how many staff members or contractors to hire. Let’s say it takes three FTEs to complete the work required by a project. They will know how many workers (full or part-time staff or contract workers) they’ll need to complete that work by a given deadline.
Are There Other Terms Similar in Meaning to FTE?
Educational institutions, outside the scope of this article, also use the term FTE, which means full-time equivalent student, or one who attends school and works in such a way that they’re equivalent to a full-time student.
It can also be used when scheduling teachers who work in more than one school or district to ensure their full-time-equivalency doesn’t go over 40 hours a week.
Why Is It a Mistake to Interchange FTE with Full-Time-Employees?
When used for ACA purposes, FTE is a very specific term used to calculate whether a company is required to provide benefits, for example. If your company has 41 full-time employees and 20 part-time employees who each work 20 hours a week, it would be a mistake to say it has 41 FTE. In fact, it has 51 FTE and would be required to offer benefits.
Calculating FTE correctly has legal ramifications such as ensuring you comply with applicable labor laws and IRS reporting rules; it also ensures you remain compliant with the ACA by providing employees with health benefits once your company reaches 50 FTE. It gives you a sense of how large your company is and how many employees you have, even if some of them are part time.