Full-time equivalent (FTE) is a unit of measure that helps employers calculate the number of hours worked by all employees in their company.
FTE can also be referred to as WTE (whole-time equivalent).
FTE calculation
To calculate FTE, find your employees’ total amount of working hours, divide it by 40 hours, and round up to two decimals.
[Total amount of hours worked by all employees] / 40 hours = FTE
Let’s say you have two hires working 40 hours per week, three part-timers each working 20 hours per week, and two people with flexible schedules working an average of 15 hours per week.
That means that you have seven employees, totaling 170 hours per week.
[170] / 40 = 4.25
For all intents and purposes, your business requires 4.25 employees to function.
When do you use FTE?
Employers can use FTE to guide their hiring strategy and plan for a project, while governments often use the metric to determine program eligibility.
Plan your hiring for a project or new business
Human resources often use the FTE metric to make staffing decisions for the entire company. Let’s say you need to calculate the total amount of hours, time, and money required for your business to run successfully. FTE will help you do this.
You can also use this metric to make predictions for project management. If a project requires 600 hours and you only want to hire full-time employees, it will take one person 15 weeks to complete the project, or two people 7.5 weeks, etc.
Government program eligibility
Several federal programs in the United States—such as the Paycheck Protection Program (PPP)—use FTE to determine employer eligibility. FTE is also used in the United States to determine whether an employer is an ALE (Applicable Large Employer) for the fiscal year. Finally, small business owners in the United States need this metric to see if they can apply for a tax credit in the amount of 50% of the employer-paid health care premiums.
Who qualifies as an FTE employee?
Full-time equivalent employees are people who work the entire workweek—eight hours per day, five days a week, totaling 2,800 hours per year.
Although most businesses consider 40 hours a week and 160 hours per month full-time employment, according to the IRS, 30 hours a week and 130 hours per month are enough. In some cases, employers consider 37.5 hours a full-time work week because they don’t include the 30-minute mandatory daily break.
What does FTE 100% mean?
An FTE 100% is a full-time employee, the one working 40-hour workweeks (also known as an FTE 1.0).
Sometimes one person can be your FTE 100%. In other cases, you’ll need multiple employees to fill the quota—two part-timers, four employees that only work 10 hours a week, etc. You can create various combinations, depending on your business needs.
For example, say you run an ice cream van five hours per day, four days a week (20 hours per week). You only have one van, so you will only require 0.5 FTE.
If you increase your opening hours and are open every day of the week, then you have a 0.875 FTE. And if you hire two trucks, then you have a 1.75 FTE. If the trucks open at the same time, then you require two different people to run them. But if not, you can have one person working overtime.
What is a 0.5 FTE?
0.5 FTE is the number of hours required for a part-time worker, approximately 20 hours per week. 0.5 FTE is typically used for positions such as project managers, supervisors, overheads, and strategists, where it isn’t necessary to be present for the entirety of the workweek, as the job can be done in fewer hours.
Are there any exceptions to calculating FTEs?
The 40-hour workweek calculation is applicable if you are doing the math for accounting and business purposes. However, FTEs are calculated differently for different purposes.
Determining ALE status
If you’re trying to determine whether or not you’re an ALE in the United States, you should use the IRS’s minimum of a 30-hour work week in your calculation. The IRS taxpayer advocate service has created an estimator that can help with this calculation.
Calculating FTE for the Small Business Tax Credit
In the United States, the Small Businesses Tax Credit helps cover the costs of health benefits for employees. You may be eligible if you have less than 25 FTEs. There are three methods for calculating FTEs for this purpose:
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Calculate actual hours worked plus vacations, holidays, and illness
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Calculate days-worked equivalency (based on eight hours per workday)
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Calculate weeks-worked equivalency (40 hours per week)
Divide the total number of hours by 2080, and that ultimately determines the number of FTEs.
Eligibility for the PPP (Paycheck Protection Program)
The PPP is an SBA program (Small Business Administration) that helps preserve a business in times of crisis. The total FTEs number is used to calculate the loan that borrowers are eligible for. To calculate the FTE metric, find the average number of FTEs per month from two different time periods (February 15, 2019, to June 30, 2019, or January 1, 2020, to February 29, 2020).
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