What is FTE and How to Calculate [+ Free FTE Calculator]

FTE stands for Free-to-Employee, and it is a metric that calculates the net profit of a company after all expenses. This can be calculated by subtracting the total cost of goods sold from revenue. The calculator will help you figure out how much FTE your business has earned in a given time period.

The Importance of Calculating FTE Correctly

Keep in mind that for a variety of reasons, an FTE estimate is employed to establish the size of your organization. For example, once you exceed 50 FTEs, the Affordable Care Act (ACA) requires you to offer health insurance to your workers, and the Family Medical Leave Act (FMLA) becomes applicable, among other things. It’s critical to make sure your FTE estimates are correct, and that they stay that way over time. Although the calculation is not complex, it is critical for IRS, Department of Labor (DOL), and Affordable Care Act (ACA) reasons.

If you’re worried about keeping compliant, look into software that provides employee benefits such as health insurance and automates payroll, eliminating the need for human data input, which may lead to mistakes and more difficulties than required.

The four stages to calculating FTE are shown below, along with a free calculator to assist you to double-check your numbers:

1. Make a List of All Employees & Hours Worked

Making a thorough list of all workers is the first step in computing FTE. These are those who are paid at the end of the year on a W-2 form. Do not include contractors that are paid on a 1099 basis. Also, unless you are paid a salary and obtain a W-2, do not include yourself as the company owner.

Include two items of information on the list: each employee’s name and the average number of hours worked each week. (Include any permitted leave, like sick leave or paid time off, in the average weekly hours for this computation.) This data serves as the foundation for computing your FTE.

2. Determine why you need FTE calculations.

FTE may be calculated in a variety of methods, and you can utilize them for a variety of purposes. For instance, you could wish to get a headcount at the beginning of each quarter or year to assess how much your business has grown. You may be looking to hire more personnel and need to know how many to hire depending on the workload.

You may be looking to see whether you’re subject to specific labor legislation, such as Title VII of the Civil Rights Act or the Americans with Disabilities Act (ADA), which kicks in after you reach 15 workers.

Also, if your company is participating in the Small Business Health Options Program or SHOP, you should be aware that the SHOP marketplace is only accessible to companies with 50 or fewer full-time equivalent workers (FTEs). Full-time workers shall be defined as individuals who work at least 30 hours per week for a minimum of 120 days per year under this system. SHOP is an excellent benefit option for your workers, but businesses must first determine each employee’s FTE.

3. Figure out which employees are full-time and which are part-time.

Most businesses define a full-time employee as someone who works between 30 and 40 hours per week for determining FTE. Although the DOL doesn’t define what a full-time employee is (it leaves it up to the employer), the IRS does, so make sure you have up-to-date records of your FTE workers when their job duties change.

Carole and Lynn are both full-time workers, thus they are both included as one FTE in the table below. However, calculating Jimmy and Marta’s FTE involves some arithmetic, which we’ll go through in the examples below.

Employees who work full-time

If you’re attempting to figure out which employees are full-time and which are part-time for ACA reasons, utilize 30 hours per week as the criterion. If you’re calculating FTE for another reason and your company considers 40 hours to be full-time, you may use that as your criterion.

Here are two examples to assist you to evaluate what constitutes full-time employment for the purposes of your FTE calculation:

Example of a 30-hour week:

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 Employees who work full-time under this example.

Example of a 40-hour week:

If your company’s standard full-time schedule is 40 hours per week, 40 is the number of hours utilized to determine whether or not an employee is full-time. In such a situation, two 15-hour-per-week employees and one 10-hour-per-week employee would make up one FTE (15 + 15 + 10 = 40 hours).

This example might help you figure out how many personnel you’ll need for a project or how much staffing you’ll need as your company grows. Carole can be considered a part-time employee if 40 hours per week is considered full-time.

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 Employees who work full-time in both cases.

Employees who work part-time

According to the IRS and the ACA, Employees who work part-time 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 works 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 employees who work part-time.

4. Calculate the total number of full-time employees you have.

The outcome of your calculation will be a number that reflects your FTE, depending on the reason you’re calculating FTE and the calculation example you apply below. The total number of FTEs in a month, quarter, or year may be used to calculate business growth. You may also utilize the FTE total to stay in compliance with federal, state, and local labor rules, such as required sick time legislation, that are dependent on company size.

Keeping Track of Hours Per Week

You’ll need to quantify your total weekly available work hours to calculate FTE accurately; it’s a key part of the equation. The number of hours your firm deems typical work time multiplied by the number of workers you need to meet those demands equals available hours per week.

To figure out how much you should pay, think about how many hours a full-time employee should work every week. Overtime is not included. Lunch breaks that aren’t compensated aren’t included. The answer should be between 30 and 40 hours per week for each employee (when considering full-time). Keep in mind that if this is becoming complicated, don’t worry; we’ll dissect these aspects a bit more as we go.

This information is sometimes included in employee handbooks or offers letters. “Our usual work hours are Monday through Friday from 8 a.m. to 5 p.m.,” a company may say. If workers take a one-hour lunch break, the total number of hours accessible every workweek is 40. (eight hours a day x five days a week).

Here are a few more examples:

• Monday through Thursday, 8 a.m. to 5 p.m. (one-hour lunch), Friday, 8 a.m. to 12 p.m. = 36 hours
• Thursday through Friday, a four-day, ten-hour workweek 7 a.m. to 6 p.m. (with a one-hour lunch break) = 40 hours
• 8:30 a.m. – 4:30 p.m. (30-minute lunch) = 37.5 hours in a five-day workweek

Actual Weekly Hours Worked

You’ll also need to know the actual number of weekly work hours to complete the FTE calculation. Actual weekly hours worked is the exact number of hours an employee worked. However, to get an average of 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 do payroll on a weekly basis, you’ll most likely have this information. However, if you pay monthly or semimonthly, you may need to divide the number of available work hours in the month by the average number of hours the employee worked to get your actual FTE.

Example of Weekly Hours Worked

One part-time employee working 10 hours per week, for example, is equal to 0.25 FTE. Here’s how it works.

Full-time employees work a total of 40 hours every week. Total number of hours worked by a part-time employee in a week = 10 40/10 = 0.25 FTE

In other words, one part-time employee equates to 0.25 full-time employees.

Example of Monthly Hours Worked

For example, 10 Employees who work part-time who each work 48 hours a month in total would be the equivalent of 2.5 FTE. Here’s the math.

The total number of hours worked by full-time employees in a month is 120. Total number of hours worked by part-time employees in a month = 48 120/48 = 2.5 FTE

In other words, your 10 Employees who work part-time are the equivalent of 2.5 full-time workers.

As an example, the Society for Human Resource Management (SHRM) gives the following further clarification:

“FTEs are defined by the number of hours worked rather than the number of workers.” You might have four workers but only one (1) full-time equivalent (FTE). A full-time equivalent (FTE) of four 0.25 workers is 1.0. Each of John, Mark, Mary, and Sue might work 10 hours per week, for a total of 40 hours or one FTE.”

—SHRM

Examples of FTE Calculation

Based on why you want to utilize the FTE data, there are three approaches to compute FTE:

FTE Estimation Made Simple 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 Employees to work part-time 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 a General Purpose Estimate

In this example, you have four Employees who work part-time and 32 Employees who work full-time. 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:

1. Add up all the hours’ Employees who work part-time 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.
2. Determine the number of hours Employees who work full-time 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.
3. Divide the top number by the bottom number (60 hours/40 hours = 1.5 FTE). Therefore, the four Employees who work part-time are equivalent to one and a half full-time workers. We’ll use 1.5 FTE as our answer.
4. To calculate our total FTE, add the part-time FTE (1.5) to the full-time FTE (32). (32+1.5=33.5). As a result, in our case, we have 33.5 FTE.

In this case, 36 workers equate to 33.5 full-time equivalents (FTE).

FTE Count (Annual)

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 Employees who work part-time throughout the year and then will need to know what the comparative full-time hours would have been.

Example of an An Annual Count

If your firm considers a full-time workday to be 40 hours, your yearly full-time hours would be 2,080. (40 weeks divided by 52 weeks is 2,080.) As a result, for a company that opens 52 weeks a year, the average number of workdays in a year is 2,080.

Other instances of typical work weeks that result in a varied amount of hours per year are as follows:

• 30 hours per week x 52 weeks per year Equals 1560 hours per year (30 * 52 = 1560)
• 32 hours per week equates to 1664 hours per year (32 * 52 = 1664)
• 35 hours per week translates to 1820 hours per year (35 * 52 = 1820).
• 38 hours per week translates to 1976 hours per year (38 * 52 = 1976).

You’ll need a report to show you how many hours part-time employees (those who work less than 30 hours per week) worked throughout the course of the year. Assume you have ten part-time employees that work a total of 6700 hours each year. (Each worked an average of 670 hours this year.)

For a firm with 55 workers, 10 of whom are part-time, here’s how the math would work in four phases.

1. Determine how many full-time (compensable) hours a full-time employee works in a year. If your employer expects a 35-hour workday and pays workers 52 weeks per year, full-time hours per year would be 1,820 (35 * 52 weeks = 1820). As a result, we’ll take 1,820 hours as an example.
2. Sum all hours worked by all Employees who work part-time for that same year. For example, if your company has 10 Employees who work part-time who in total worked 6700 hours in the year, then 6,700 hours is the value we’ll use.
3. Divide the bottom number by the top number. The total hours’ workers could be paid for is 1,820/year. Employees who work part-time work 6,700 hours in total. Therefore, those 10 employees equate to 3.68 full time employees (6,700/1,820 = 3.68). Employees who work part-time equal 3.68 FTEs.

NOTE: (You could also use the average of 670 hours worked a year by Employees who work part-time 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 Employees who work part-time x.368 FTE each=3.68 total FTE)

1. Add the number of employees who work full-time to the part-time FTEs. For example, you had 45 Employees who work full-time 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

You have 55 total workers (your headcount) but only 48.68 FTEs in this scenario.

FTE Count That Meets ACA Requirements

Because every business with 50 or more FTEs must provide ACA health coverage, the computation becomes more precise. Only workers who have worked 120 days or more are counted, for example. You must also offer an average based on four months’ worth of data on hours worked.

In addition, the ACA defines full-time as 30 hours per week. As a result, every employee who works at least 30 hours per week, or 130 hours per month on average, is deemed full-time. This has an impact on your computations.

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 Employees who work part-time.

1. Identify all current Employees who work full-time 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 Employees who work full-time, then that equals 35 FTE.
2. Identify all current Employees who work part-time who worked during that same 120 day time frame. (Don’t count Employees who work part-time who are no longer working, or Employees who work full-time who just started and haven’t yet worked for four months.) Let’s say the number is 12 who fits those criteria.
3. Count the average hours worked by each part-time employee over the four-month period and divide it by all hours Employees who work full-time would have been compensated for that same pay period (in this case 30 hours a week or 120 a month).

Assume that one ACA FTE was paid for 130 hours per month during the last 120 days. As a result, they’d put in 520 hours over the course of four months. (130 hours multiplied by four equals 520 hours.) You have 12 part-time workers that worked a total of 2500 hours over four months, an average of 208.3 hours per employee (2500/12/4=208.3).

The average full-time equivalent (FTE) for part-time employees is 0.40 (208.3/520=0.40). They equal 4.8 FTE (12 x 0.40= 4.80) 4.8 FTE since there are 12 of them.

1. Add the two FTE totals together, which equals 4.8 FTE for a total of 35 full-time employees. (35.6 + 4.8) = 39.8 It’s worth noting that 39.8 FTE is fewer than your overall number of 47 workers.

As a result, even though 47 workers seem to be nearing the ACA level of 50 FTEs, your real FTEs are less than 40. As a result, you’re still a long way from having to give workers obligatory health coverage.

If you’re computing statistics for ACA reasons, you’ll receive a different total than if you’re tracking FTE needs for personnel expansion, which utilizes 30 hours as a regular weekly computation.

In other words, your company may have a 38-hour workweek that suits you, the DOL, and basic labor law requirements. However, for ACA reasons, you must compute FTEs based on 30 hours or more, which equals one FTE. As a consequence, your FTE count for ACA reasons will be somewhat greater than for business planning or general headcount purposes.

Frequently Asked Questions (FAQs)

What does 0.5 FTE mean?

Part-time opportunities are often listed as 0.5 FTE or any other fraction of what a full-time employee would work when discussing the number of employees a firm has or the number of vacant jobs available.

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 Employees who work full-time 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 Terms “FTE”

FTE is a common abbreviation used by HR professionals and project managers. The word is used by HR workers to describe to their management team how many full-time-equivalent employees work for a firm. They may also utilize FTEs to offer the budgeting team an estimate of how many new recruits are expected in the next year.

Are there any other terms that have the same meaning as FTE?

Outside of the scope of this article, educational institutions may use the word FTE, which stands for full-time equivalent student, or a student who attends school and works in a fashion that is equal to a full-time student.

Watch This Video-