How To Calculate Full-Time Equivalent (With Examples)

By Abby McCain - May. 31, 2021
Articles In Guide

Find a Job You Really Want In

If you own your own company, it probably didn’t take long for you to notice the sheer number of acronyms that get thrown around in the business world.

From legal documents to accounting to marketing, it can be difficult to decipher what you need to do to ensure your business is compliant and thriving, let alone understand what each acronym means.

One acronym you’ll likely encounter when you start hiring employees is FTE, or full-time equivalent. In this article, you’ll learn what that is, why it’s important, and how to calculate it.

What is an FTE Number?

FTE stands for full-time equivalent, and it’s a standardized unit of measurement that companies use to figure out how many full-time employment hours their workers are completing, whether they all technically work full-time or not.

If your company only hires part-time employees, you’ll still end up with an FTE number to report, just like companies that only hire full-time employees. The same goes if you have a combination of both.

Calculating the number of employee hours companies have provides a baseline for measuring all organizations and their workforces against one another.

Why Your Company’s FTE Number Matters

As you know, you must follow many laws when you’re running a business. As complicated as they are when your business is just you, these rules change once you start hiring employees, and they continue to change based on the number of workers you hire.

For example, one of these laws, mandated by the Affordable Care Act (ACA), states that if your business has 50 or more employees, you have to offer group health insurance to your workers.

Well, this sounds like it’s easy enough to abide by in theory, but it gets complicated because there are so many different types of employees a business can have. A company that employs 50 full-time workers isn’t the same as a company with 50 part-time employees, for instance.

Because of this, many laws like this one use FTEs to give streamlined benchmarks for businesses so they can know which laws they fall under.

As far as the ACA is concerned, even if you don’t necessarily have 50 full-time employees because you have some part-time workers, you still have to offer group health insurance if you calculate your FTE number and it’s at least 50.

Keeping your company compliant isn’t the only reason you need to know your company’s FTE number, though.

Often you’ll also need to provide your FTE number when you apply for business loans or other programs such as the Paycheck Protection Program (PPP), Consolidated Omnibus Budget Reconciliation Act (COBRA), and Employee Retention Credit (ERC).

Your FTE number may qualify or disqualify your business for programs like these, and it may put your company into a certain tier for loans and other benefits.

In addition, using your FTE number in your accounting can help streamline your records. Calculating your estimated revenue per employee, for example, will go much more smoothly if you know your FTE number, especially if you have a mixture of full and part-time employees.

So, the bottom line is that you need to know your company’s FTE for three reasons:

  1. It helps your business stay compliant.

  2. It helps you take advantage of loans and programs your business qualifies for.

  3. It helps you keep your accounting more accurate.

How To Calculate Your FTE Number

Now, to calculate your FTE number, you’ll need to follow these steps:

  1. Calculate how many part-time employees you have. To do this, you’ll need to figure out what counts as a part-time employee. This can change based on who is asking you for your FTE number, so make sure you read any instructions carefully.

    For general purposes, the IRS considers employees who work less than 130 hours a month or 30 hours a week as “part-time employees.”

  2. Determine the period you’re using to calculate your FTE number. This could be a week, a month, or a fiscal year. Whatever it is, it just needs to be consistent across your entire calculation. For the sake of the rest of these instructions, we’ll be using a week.

  3. Figure out the average number of hours your part-time employees work each week and add them together. For example, if you have ten workers who usually work 20 hours a week and one who works 15, you’d multiply the ten workers by the 20 hours and then add that result to the 15 hours to get 215 employee hours.

  4. Divide that number by the number of weekly work hours that make an employee full-time. In this case, that number would be 30 since the IRS states that as soon as an employee works 30 or more hours per week, they’re considered full-time.

    So, 215 divided by 30 is 7.167. You should round it down to the nearest whole number, though, so your final answer would be seven.

  5. Add the number of full-time workers you employ to that number. If you have 13 full-time employees, you’d add that to the seven you got in the last step, giving you a result of 20. This is your FTE number.

If you prefer seeing steps like these in formulaic form, here it is:

FTE = [(Number of part-time employees x Number of part-time hours each employee works per period) / (Full-time hours for the period)] + Number of full-time employees

Keep reading to see how this formula would play out in real life.

Examples of Calculating Your FTE Number

  1. Example 1

    Say you have a small business with 14 employees. Eight of them work full-time, while six are part-time workers who only come in 20 hours each week. The minimum number of hours worked each week for employees to be considered full-time workers is 30.

    To calculate your FTE number, you need to start by figuring out how many hours your part-time employees work each week. For this example, since all six of your part-time workers work 20 hours a week, you just need to multiply your six employees by 20 hours, which results in 120 employee hours.

    Next, you’ll divide that number by 30 since that’s the minimum number of weekly working hours that constitutes a full-time employee. 120 divided by 30 is 40.

    Now, you’ll add your eight full-time employees to that number, which will give you your FTE number. So, 40 + 8 = 48, which means your FTE number is 48.

  2. Example 2:

    Now it’s time to calculate your FTE number when the situation is a little more complex.

    Say you have 15 full-time and ten part-time workers, but those part-timers don’t all work the same number of hours. Instead of taking one step to multiply the total number of part-time employees by the number of hours they work each week, you’ll do that same step multiple times: One for each group of employees who work the same number of hours.

    Here’s what this might look like if two employees work 12 hours a week, four work 20, one works 18, and three work 10:

    2 x 12 = 24
    4 x 20 = 80
    1 x 18 = 18
    3 x 10 = 30

    Now add those results together:

    24 + 80 + 18 + 30 = 152

    Next, divide 152 by 30 and round the answer. This gets you five. Add that to your number of full-time employees (15), and you’ll get your FTE number.

    So, 5 + 15 = 20

    Your FTE number is 20.

Other Considerations to Note When Calculating FTE

  1. Pay attention to other requirements that come with laws that ask for your FTE number.

    If you run a highly seasonal business that requires a large seasonal workforce, for instance, make sure you look into the requirements for the minimum hours per year that your employees need to work before you start calculating your FTE number.

    For example, say you’re trying to calculate your FTE number for the ACA and have a business like a Christmas tree lot that is only open for a few months each year.

    Even if you hire 50 full-time employees, you may not need to pay them benefits because they’re only working for you 60 days out of the year, which falls far below the ACA minimum.

    This standard will likely change with each program or law you’re trying to calculate your FTE number for, so pay close attention.

  2. Some programs have specific ways they want you to calculate your FTE number. While you can do a one-and-done FTE calculation for many of the purposes you’ll use the number for within your business, some programs have their own set of regulations on how to calculate it.

    Some have a different standard for how many weekly hours constitute full-time employee status, and some want you to calculate your average FTE number for a year instead of by week or month. This can get a little trickier, especially if your employee count has gone up and down during that time.

    To do this, you’d follow the steps above to find your FTEs for each month of the year in question, add those numbers together, and then divide them by 12.

  3. If in doubt, consult an expert. Every business is different, and compliance issues for your company are not the time to make decisions based on your best guess. If you need help calculating your FTE number or filling out a form, ask for help.

    That may mean hiring an accountant or simply asking someone you trust who has experience running a business for advice. Whatever you choose to do, asking for help is always a good idea.

How useful was this post?

Click on a star to rate it!

Average rating / 5. Vote count:

No votes so far! Be the first to rate this post.

Articles In Guide
Never miss an opportunity that’s right for you.

Author

Abby McCain

Abby is a writer who is passionate about the power of story. Whether it’s communicating complicated topics in a clear way or helping readers connect with another person or place from the comfort of their couch. Abby attended Oral Roberts University in Tulsa, Oklahoma, where she earned a degree in writing with concentrations in journalism and business.

Related posts