Figuring out exactly how many people work for a company is more complicated than asking for a show of hands. Some people work full-time while others work fewer hours. And while they’re all valued as part of the company, there are certain situations in which they’re not considered in the same way when calculating your headcount.
This is where the concept of the full-time equivalent (FTE) employee comes in. Put simply, FTE is a way of tallying a company’s total staff. This is done by counting somebody who works half as much as a full-time employee as half an employee, and so on. It might sound cold, but it’s a vital metric when companies are applying for government loans, and when determining whether the company is large enough to have to follow certain laws.
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What is a full-time equivalent?
FTE stands for full-time equivalent, and it’s a unit of measurement equal to the number of hours typically worked by a single full-time employee at a given company. FTE is a way for employers to add up and compare a mix of part-time and full-time workers, by combining their relative working hours into one simple and easy to understand value.
So why might an employer need to do this? Some labor laws and employee benefit programs are linked to how many employees a company has on its payroll. To ensure that a company with 100 part-time employees is treated as fairly as one with 50 full-time employees, an FTE is calculated to compare both workforces.
FTE counts part-time employees as some fraction of a full-time employee, usually based on the number of hours they work (though depending on the business, there are other ways of measuring a given employee’s contribution).
A single full-time employee is the baseline of the measurement and has an FTE of 1.0, while a part-time employee working half as many hours has an FTE of 0.5. These values are combined with simple addition, so that three part-time employees working half as many hours as a full-time employee would have a total FTE of 1.5.
What is an FTE employee?
A full-time equivalent employee is a worker with an FTE of 1.0, which will usually mean they’re employed full-time at your company. A full-time employee is considered to work at least 30 hours per week on average.
The FTE employee doesn’t have to actually exist, and can be a combination of part-time employees. For example, if your entire staff works part-time, the FTE employee is a hypothetical full-time worker by which your part-time workers are measured.
Because the ideas of FTE and literal full-time employment are so closely linked with one another, the acronym itself is often mistakenly thought to stand for “full-time employee.” You’ll see it used interchangeably all of the time, so don’t worry too much about conflating the terms.
How to calculate full-time equivalents
If you’re ever asked to calculate FTEs for your company, the person or organization asking you for the figure should be able to outline exactly how they expect you to arrive at your result. Generally speaking, you can arrive at your own FTE by following the steps below.
1. Calculate the number of hours worked by part-time employees. Get this by multiplying three figures: the number of part-time employees, the total weekly hours they work, and the number of weeks worked.
2. Calculate the number of hours worked by full-time employees. Get this by multiplying the number of full-time employees by the number of hours in a working week (usually 40, though sometimes less). Then multiply that by 52, the number of weeks in a year.
3. Add the hours worked by part-time and full-time employees. This gives you the total number of hours worked by all of your employees.
4. Divide the total hours worked by all of your employees by the number of available full-time hours in a year (usually 2,080). This gives you your FTE for the year.
Example of an FTE calculation
Let’s say you have four full-time employees, three part-time employees working 20 hours a week for 30 weeks per year, and one part-time employee working 15 hours a week for 52 weeks per year.
We’ll assume that where you are, full-time employment means working 8 hours a day, 5 days a week, for 52 weeks a year. Benefits like paid time off and maternity/paternity leave are all included within the number of hours worked, so don’t worry about accounting for these hours.
First, we calculate the part-time hours worked:
- 3 people x 20 hours x 30 weeks = 1,800 hours
- 1 person x 15 hours x 52 weeks = 780 hours
- Total part-time hours worked = 2,580 hours
Now we calculate the full-time hours worked:
- 4 people x 40 hours x 52 weeks = 8,320 hours
Add these hours together to get the total number of hours worked by all employees:
- 2,580 + 8,320 = 10,900 hours
Finally, divide this by the number of workable hours in a year (usually 2,080):
- 10,900 / 2,080 = 5.24 FTE
In this example, your company has the equivalent of 5.24 full-time employees, or a 5.24 FTE. By this measurement, your four part-time workers amount to just less than one and one-quarter of a full-time equivalent employee.
What is 100 percent FTE?
100 percent FTE is the same as 1.0 FTE. This could refer to either a single full-time employee or two or more part-time employees whose contributions add up to the equivalent of one full-time worker.
What is 75 percent FTE?
75 percent FTE is the same as 0.75 FTE. In a 0.75 FTE position, an employee will typically work 75 percent of the hours of a full-time employee. If a working week is 40 hours over 5 days, a 0.75 FTE employee will work just 30 hours in that same period.
Why the FTE calculation is important
Knowing your company’s FTE is useful for internal purposes. For example, measuring FTE from month to month, or even week to week, helps to track overall workloads and expected employee output, even as part-time schedules chop and change.
More importantly, many government support programs use FTE as a basis to decide how your company should be treated. And some state and federal employment laws only apply to companies who meet a certain threshold of FTE employees.
Let’s take a look at a few of the more common programs you might be expected to provide an FTE figure for.
Calculating FTE for ACA
The Affordable Care Act (ACA) is designed to reduce the cost of health coverage for uninsured and lower-income individuals and their families. Under the ACA, some large employers might be responsible for providing minimum essential coverage or making shared responsibility payments to the IRS.
To determine whether a company is an Applicable Large Employer (ALE), the ACA says that a company must have an average of 50 or more FTE employees over the course of one year. The ACA considers a full-time employee one who works at least 30 hours per week.
Calculating FTE for PPP
The Paycheck Protection Program (PPP) is designed to prevent job losses during the pandemic by giving loans to small businesses to cover payroll expenses and other costs. A portion of this loan can be forgiven based on the number of FTE workers an employer has on its payroll.
To calculate your FTE when applying for a PPP loan, take the average number of hours worked by employees each week for the covered period, divide by 40, and round to the nearest tenth. For a PPP loan, a full-time employee is considered to work at least 40 hours per week, and no single employee can have an FTE exceeding 1.0.
A simpler way of calculating FTE for PPP is to assign an FTE of 1.0 to employees working 40 or more hours per week, and an FTE of 0.5 to those who work less.
Calculating FTE for ERC
The Employee Retention Credit (ERC) is another measure designed to incentivize employers to keep hold of staff during the COVID-19 pandemic. It comes in the form of a tax credit worth half of employee wages over the course of a covered period.
Depending on how big a company is, the ERC is calculated differently. Companies with an average FTE below 100 receive tax relief based on all employee wages, while companies with an average FTE above 100 receive tax relief based on wages paid to employees who were not working.
Calculating FTE for COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a law requiring some employers to offer continued health coverage to workers and their families when they are no longer eligible for the company-provided plan.
To be required to provide COBRA continuation coverage, a company must employ at least 20 full-time equivalent employees on more than half of its working days in the past year.
To calculate FTE for COBRA, multiply the number of part-time workers you have by the average number of hours they each work per week, and divide the result by 40 (the working hours in a week for a full-time employee). This tells you how many FTE employees your part-time workers add up to. Add this to the number of actual full-time employees you have to find your total FTE.
Steve Hogarty is a writer and journalist based in London. He is the travel editor of City AM newspaper and the deputy editor of City AM Magazine, where his work focuses on technology, travel, and entertainment.
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