What is FTE? FTE stands for full-time equivalent. It is a measure used for the total of full-time employees—or part-time employees that add up to full-time employees—your organization employs.
An FTE calculation helps a company and its various departments determine hiring needs for the future. In addition, they help you forecast and track employee salaries and hours worked. FTE metrics are also used to ensure compliance with legal employment requirements, like those of the Affordable Care Act (ACA), as well as meeting the requirements for certain company tax credits.
What Is an FTE?
What does FTE mean? FTE indicates the number of hours a full-time employee works in a standard week for your business. The purpose of using FTE is to get to the number of total hours worked vs. the number of employees you have.
Utilizing the total hours worked vs. the number of employees allows you to forecast, budget, and calculate required staff and wages to pay them more easily. For example, if your company’s standard work week is 30 hours, then two employees that work 15 hours per week each or three employees that work 10 hours per week each would count as one FTE.
FTE standardized calculations like this are helpful for a number of reasons. For one, they allow for the evaluation of labor costs and workload requirements. For example, once a project manager estimates the number of full-time workers required to accomplish a project, they can calculate salary needs.
Or a business analyst can determine requirements to meet day-to-day business tasks for a new department, which allows them to determine the number of full-time employees to forecast and budget for that department. Managers and HR departments also apply FTE calculations to allocate department headcounts based on each department’s workload.
Budget analysts can use the FTE meaning job metrics for headcount analysis. They can quickly compare profits to headcounts or output numbers with FTE metrics. Employers also use FTE calculations for benchmarking profits or revenues per employee.
HR departments utilize FTE to standardize salaries and working hours for part-time employees. A quarter-time employee would be a 0.25 FTE since they work 25% of the hours of a full-time employee. As such, they would be paid 25% of a full-time employee’s salary.
When annual forecasts are necessary, the term work-year equivalent (WYE) is sometimes used in lieu of full-time equivalent, or FTE.
How Do You Calculate FTE?
You can technically break the FTA meaning down into two categories:
- The total number of part-time employees your company employs or requires that equate to a full-time employee
- The total number of full-time employees your company employees or needs to hire.
When you add up items 1 and 2, you get the total number of FTEs currently with or needed for your organization.
So, again, FTE calculations align with hours worked rather than the number of employees. You could have four employees and only have one FTE. One FTE would equal four 0.25 employees.
To calculate FTE for your company, follow these steps:
List all your employees and their weekly hours worked. Exclude independent contractors, as they are not considered employees.
Example: An employer has a headcount of five. Three employees work 40 hours per week. One employee works 20 hours per week. One employee works 30 hours per week.
Identify the number of work hours defined as a full-time position. Most employers define a full-time employee as one that works 40 hours per week, on average. Some organizations might use 30 or 35 hours to define full-time employees. Any employee that works an average number of weekly hours below the full-time employment definition would be considered part-time. The number of hours per week that defines full-time employment is the number that is used to determine one FTE.
Example: The company defines 40 hours per week as full-time.
Determine the total hours worked per year. Multiply the number of hours per week by 52, for 52 weeks in a year.
40 weekly hours per full-time employee: 40 X 52 = 2,080 hours = 1.0 FTE
20 weekly hours employee: 52 X 20 = 1,040
30 weekly hours employee: 52 X 30 = 1,560 hours
Add together all part-time hours worked by employees defined as part-time.
Example: 1,040 + 1,560 = 2,600 hours
Calculate your part-time FTE by dividing the total hours worked by part-time employees calculated in Step 5 by the total annual worked by full-time employees calculated in Step 3.
Example: 2,600/2,080 = 1.25 FTE
Determine your total FTE by adding your full-time FTE to your part-time FTE from Step 6.
Three full-time employees = 3.0 FTE
The part-time FTE = 1.25
3.0 + 1.25 = 4.25 FTE
In the example calculation, the headcount is five, and the FTE is 4.25
How Do You Calculate a Single Part-Time Employee FTE?
To determine an employee’s FTE, simply divide the employee’s scheduled weekly hours by the number of hours the employer defines as a workweek. For example, if you define full-time employees as working 30 hours per week, a part-time employee who works 18 hours per week would be 0.6 FTE.
What Is the ACA FTE Definition?
The ACA requires employers that have 50 or more FTEs to provide ACA-compliant healthcare benefits. The Affordable Care Act defines full-time employees as anyone working 30 hours per week or more on average. Even if your organization defines full-time employment as more, you must abide by the ACA definition to be in compliance with ACA requirements.
FTE calculations are necessary for employers to fully appreciate their workforce and budgetary needs. They are also useful in determining how well an organization is doing in regard to output per employee and the bottom line. You now have the basic calculation to determine the FTEs you currently have or to forecast future needs, among other reasons you might find the metric and FTE meaning useful.