FTE stands for full-time equivalent and translates the total hours worked by part-time employees into the number of equivalent full-time employees. FTE is a very specific term used to calculate whether a company is required to provide benefits under the Affordable Care Act (ACA) and the Family Medical Leave Act (FMLA), for example. Employers can also monitor workloads for future budgeting and staffing with FTE.
Determining the number of part-time FTEs requires calculations. 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 in a week, month, or year. You can then determine the equivalent number of full-time workers you employ.
Calculating FTE Manually
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. (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).
Your FTE 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 and by the FMLA to allow employees to take up to 12 weeks of leave for qualifying conditions.
If you’re concerned about staying compliant, consider software such as Homebase that will track your employee hours, provide reporting, and can also prepare your time sheets for payroll.
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.
Total Hours Worked in a Week
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 30-40 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.
Total Hours Worked in a Week
Full Time (FT) or Part Time (PT)
If you’re trying to determine who is 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 – 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 be considered part time and their combined FTE would be one. 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 determine a full-time employee. In that case, it would take two 15-hour and one 10-hour a week part-time workers to equal one FTE (15 + 15 + 10 = 40). 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 32 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 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 weekends. It could also be a temporary staff member who works an irregular schedule.
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.
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 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 30-40 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. – 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 a.m. – noon = 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, 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, like Homebase, 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, Homebase provides small business employers with a range of scheduling options to ensure your staff hours are within the correct range.
FTE Calculation Examples
Below are two ways to calculate FTE:
Hours Worked (week)
40 hours each (based on an individual full-time workweek)
Your 36 part-time and full-time employees are equal to 33.5 FTE.
Hours Worked (year)
6,700 hours total
1,820 hours each (based on an individual 35-hour full-time workweek)
Your 55 part-time and full-time employees are equal to 48.68 FTE.
Calculating FTE correctly helps ensure you are compliant with applicable labor laws and IRS reporting rules; it also ensures you remain compliant with the ACA and FMLA by providing employees with health benefits and leave once your company reaches 50 FTE. Additionally, FTE calculations give you a better sense of your current staffing levels so that you can plan and budget accordingly.