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Determining the amount of workers in your organization and the amount of time they work is crucial for budgeting, benefits administration and legal purposes. That said, full-time equivalent (FTE) is a metric used to determine the total number of full-time workers that you have in an entire organization. In this article, we’ll teach you everything that you need to know about calculating this metric and why it matters.
What Is a Full-Time Equivalent (FTE)?
A full-time equivalent (FTE) is a unit of measurement used to figure out the number of full-time hours worked by all employees in a business. If your business considers 40 hours to be a full-time workweek, then an employee working 40 hours per week would have an FTE of 1.0. In contrast, a part-time employee working only 20 hours per week would have an FTE of 0.5—which shows that their hours worked are equivalent to half of a full-time employee.
Benefits of Calculating FTEs
- Budgeting. FTEs come in handy for budget considerations. Managers and executives use this figure to estimate the labor costs and timelines for a specific project or to fulfill a specific task. Meanwhile, finance teams use this information when planning financial forecasts and determining revenue and profits per employee.
- Identify workload. FTEs can help identify the number of full- and part-time workers an organization can hire, as well as the number of hours they should work. This is useful when determining employee outputs as schedules and budgets for part-time employees continue to change.
- Hiring considerations. A full-time equivalent is also useful when evaluating whether it’s more cost-effective to hire a part-time worker versus a full-time employee. Organizations can also calculate the pro-rata salary for part-time employees based on the FTE.
How To Calculate FTE
There are six essential steps to calculate your FTEs:
1. List all of your employees and hours worked
Make a list of employees paid with a year-end W-2 form. The list should include the employee’s name and the number of hours they work per week. Make sure to exclude time allotted for paid leave and sick leave. Do not include 1099 contractors; they are not considered employees.
2. Define the number of hours for a full-time position
A full-time position would equate to around 30 to 40 hours per week for most employers. If a company considers 40 hours per week as the basis for a full-time position, then anyone working an amount of hours below this range is considered a part-time employee. The same logic is applied if a company considers 30 hours per week as the standard for a full-time position.
3. Calculate annual hours worked
Calculate the FTEs by determining the number of hours worked by full-time or part-time employees in a year. To do this, multiply the number of weeks in a year with the number of hours for a full-time position.
4. Add annual hours worked for full-time employees and part-time employees
Next, add the total hours worked by full-time employees and the total part-time hours worked by part-time employees.
5. Identify the part-time FTE
To identify the FTE of part-time employees, divide the total hours worked by part-time employees by the annual hours worked by one full-time employee (i.e., 2,080 hours).
6. Determine the total FTE
To calculate the total FTE, add the number of FTEs worked by full-time employees (1 FTE for each full-time worker) to the part-time FTE you calculated in step five.
Example FTE Calculation
For more clarity, here’s an example calculation of an FTE.
Step 1. List all of your employees and hours worked
Company A has five employees. This includes three full-time employees that work 40 hours per week. One part-time employee who works ten hours per week and one part-time employee who works 25 hours per week.
| Employee | Total Hours Worked in a Week | Classification |
|---|---|---|
Employee A | 40 | Full time |
Employee B | 40 | Full time |
Employee C | 40 | Full time |
Employee D | 25 | Part time |
Employee E | 10 | Part time |
Step 2. Define the number of hours for a full-time position
Company A considers 40 hours per week as a full-time position.
Step 3. Calculate annual hours worked
Multiply the total hours worked in a week by 52, the number of weeks in a year, to find the number of hours worked annually.
| Employee | Total Hours Worked in a Week | Classification | Annual Hours Worked |
|---|---|---|---|
Employee A | 40 | Full time | 2,080 (1 FTE) |
Employee B | 40 | Full time | 2,080 |
Employee C | 40 | Full time | 2,080 |
Employee D | 25 | Part time | 1,300 |
Employee E | 10 | Part time | 520 |
Step 4. Add annual hours worked for full-time employees and part-time employees
- Full-Time Employees A to C: 2,080 x 3 = 6,240 hours
- Part-Time Employees D and E: 1,300 hours (Employee D) + 520 hours (Employee E) = 1,820 hours
Step 5. Identify the part-time FTE
To identify the FTE for part-time positions, divide the total number of part-time hours worked by the number of hours worked by one full-time worker. In our example, we will divide the total hours worked by Employees D and E by the number of hours worked by Employees A.
1,820 hours ÷ 2,080 hours = 0.875 FTE
Step 6. Calculate the total FTE
Add the total hours worked by part-time and full-time employees.
Three full-time employees would have an FTE of 3.0 and the part-time FTE is 0.875.
3.0 (full-time FTE) + 0.875 (part-time FTE) = 3.875
Therefore, the total FTE of Company A is 3.875.
Keeping FTE ACA-Compliant: What You Need To Know
According to the Affordable Care Act (ACA), employers with 50 or more FTEs are required to offer ACA-compliant benefits. The ACA defines a full-time employee as someone who works 30 hours per week or 130 hours per month. If your company considers the number of hours for a full-time position as 40 hours per week, note that working 30 or more hours counts as 1 FTE for purposes of ACA compliance.
Using FTE To Set Part-Time Salaries
You can also use an FTE calculation to determine the appropriate pay for part-time workers. To identify the FTE for a specific part-time position, just divide the number of hours worked by the employee by the number of hours considered for a full-time worker.
For example, if your business pays a certain type of employee $40,000 a year for a full-time 40-hour workweek, an employee who works 25 hours a week would have an FTE of 0.625 and a salary of 40,000 x 0.625, or $25,000.
Frequently Asked Question (FAQs)
What does FTE mean?
A full-time equivalent (FTE) is a unit of measurement used to determine the amount of full-time hours worked by all employees in an organization. If a normal work week consists of 40 hours, an employee who works for 40 hours per week has an FTE of 1.0 while a part-time employee working only 20 hours per week has an FTE of 0.5.
What does FTE mean in salary?
Wage in full-time equivalent is a wage that is converted to full time throughout the year. It does not consider the actual tasks and responsibilities related to the position.
Is it better to have part-time or full-time employees?
Whether you hire employees as part time or full time depends on your business needs and local regulations. Hiring several part-time employees could give you flexibility with scheduling and costs, but full-time positions, especially with benefits, will likely attract more experienced candidates and encourage more loyalty from employees. A part-time workforce might save you money in wages and benefits but could, in turn, cost more in rehiring and training.
