You may have heard the term Full-Time Equivalent (FTE) in the context of the number of employees working, the salary employees receive or the benefits a company is mandated to give their workers.
What does FTE stand for, how do you calculate it and how does it affect a company and its employees?
What is FTE or Full-Time Equivalent?
The FTE definition refers to the number of hours of work of a full-time employee.
Each company determines how many hours they consider full-time, calculating the number of hours worked each week by the number of workweeks a year. For example, a company might consider 40 hours a week, 52 weeks a year, as full-time. If an employee works 40 hours a week, they count as one full-time employee or 1.0 FTE.
If an employee works 20 hours a week for this same company, they only work half the amount as a full-time employee and are 0.5 FTE. An employee who works 60 hours a week works 1.5 times as much as a full-time employee and is considered as 1.5 FTE.
What is an FTE employee?
An FTE employee is someone who works the equivalent of the company’s full-time hours and is counted as 1.0. Note that a 1.0 FTE may mean there are two employees both working 0.5 FTE hours, or one employee working at 0.5 and two employees working at 0.25 hours.
If the company considers 30 hours as full-time, an employee working 30 hours would be a full-time equivalent employee. If a company considers 40 hours as full-time, an FTE employee would be someone who works 40 hours, or two employees working 20 hours would be considered 1.0 FTE.
How to Calculate FTE
To calculate the Full-Time Equivalent, simply divide the number of hours an employee works by the number of hours the company counts as full-time.
The FTE formula is # of hours worked / # of full-time hours.
Full-Time Equivalent Calculator
To figure out an employee’s FTE:
- Calculate the Full-Time Equivalent hours per year. To do this, take the number of hours a full-time employee should work each week, and multiply by how many weeks per year the company expects the employee to work.
Remember to deduct any allotted holidays, vacation and sick days from the total number of hours working in a year. For our examples, we are allotting four weeks total time off a year, bringing the number of working weeks down from 52 to 48.
For example, 40 hours a week x 48 weeks a year = 1920 FTE hours in a year.
- Determine how many hours an employee works in a year by multiplying the number of hours they work in a day, by the number of days they work a week, by the number of weeks they work a year.
Remember to deduct holidays and days off. In our example, the company gives all its workers the same four weeks off, but employees may have different benefits packages in some companies, which may change the FTE calculations. For instance, part-time employees may not receive as many days off as their full-time colleagues.
- For example, Janet works 10 hours a day, 5 days a week: 10 x 5 x 48 = 2400 hours
- Tom works 8 hours a day, 5 days a week: 8 x 5 x 48 = 1920 hours
- Ryan works 5 hours a day, four days a week: 5 x 4 x 48 = 960 hours
- Gina works 5 hours a day, 2 days a week: 5 x 2 x 48 = 480 hours
- Divide the number of hours an employee works by the number of FTE hours.
- For example, Janet works 2400 hours / 1920 FTE hours = 1.25 FTE
- Tom works 1920 hours / 1920 FTE hours = 1.0 FTE
- Ryan works 960 hours / 1920 FTE hours = 0.5 FTE
- Gina works 480 hours / 1920 FTE hours = 0.25 FTE
Calculating a Company’s FTE
Once a business knows the FTE of each employee, they can calculate their company’s FTE.
- List of the company’s salaried employees working either full-time or part-time but exclude any independent contractors.
For example, company ABC has four employees: Janet, Tom, Ryan, and Gina.
- Calculate the total FTE of the employees.
In our example, we calculated Janet at 1.25, Tom at 1.0, Ryan at 0.5 and Gina at .25.
- Add up all the employees’ FTE to determine the total Full-Time Equivalent of the company.
In our example, 1.25 + 1.0 + 0.5 + 0.25 = 3.0
This means that although company ABC employs 4 workers, their combined hours are equivalent to 3 full-time employees.
The Importance of Knowing FTE
Why is it important for companies to know their full-time equivalent? A business’s FTE of its employees, or similarly, a school’s FTE of its students, can impact several areas.
Manage Company Projects and Workloads
For a business to manage their business efficiently, they need to know they have enough manpower to carry out the work. A headcount is not enough.
What does a headcount mean? A headcount is the number of employees a business has. However, that doesn’t always accurately depict the workload a company can carry.
Without knowing how many employee hours they have available, a company may commit to more work than they can realistically complete, or they may underestimate their capacity and pay for more workers than they need.
Continuing with our example above, the CEO of company ABC may expect their business’s output to be at a capacity of four employees, as per the headcount, when calculations show that those four employees’ hours are equivalent to only three.
Conversely, consider a business that has two employees working 60 hours a week each. When the company calculates their FTE, they realize their two employees are the equivalent of three full-time workers. (They may opt to give their employees a generous raise or some extra time off).
Calculate Salary, Bonuses and Benefits
Businesses may find it difficult to determine the salary of part-time workers, especially when they work only a few days a week. Using the FTE calculations, a company can clearly see how much the employee works in comparison to a full-time employee.
Back to our sample company ABC, employee Gina works 0.25 times the amount of a full-time employee. Her boss may use that as the basis for the salary negotiations. On the other hand, employee Janet works 1.25 times the amount of a full-time employee and may receive a higher salary than 1.0 employee.
Employers may also base their extra benefits and bonuses on the number of hours worked. A company may have the policy that only employees working 0.75 FTE and higher receive paid vacation days or a longer lunch break.
To calculate a salary based on the FTE hours, take the salary of a full-time employee and multiply it by the FTE of the employee.
For example, if ABC offers $50,000 a year for an employee working 40 hours a week:
- Gina’s salary would be calculated at 50,000 x 0.25 = $12,500
- Janet’s salary would be calculated at 50,000 x 1.25 = $62,500
Laws and Regulations
Different locations have different laws regarding employer mandates to their employees. Some are based on the number of Full-Time Equivalent workers a company employs.
Companies with a higher FTE may need to provide additional benefits to their employees. It is crucial for each company to know their FTE to ensure they are complying with the law.
- The number of full-time employees a company employs may impact taxes to the IRS. It’s crucial to know how many FTE employees a business has. They may be eligible for tax breaks or may be subject to different regulations. The IRS considers 30 hours a week as a full-time employee. This means that to the IRS, an employee working 30 hours a week is 100% FTE.
- As per the United States Affordable Care Act, companies with more than 50 FTE employees must provide health insurance to their employees. A company may have 50 employees, but if some of them work part-time and the total FTE hours of the employees are under 50, then the business does not need to offer insurance. The Small Business Administration details the requirements.
- Depending on the number of FTE employees, a business may be required to provide time off for new parents and other family considerations, under the Family Medical Leave Act.
The Full-Time Equivalent is the number of hours a business considers a full-time employee to work. While each business may require a different number of hours, legally most employees are full-time at 30 hours a week.
It is important for businesses to know their FTE for internal management and workloads, salary negotiations and to stay in compliance with legal mandates.