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Calculating FTE can be a demanding, time-consuming task without the right tools. When done manually, tracking down your employee’s hours and calculating the FTE is guaranteed to cause some headaches — but don’t worry.
Calculating FTE hours is essential for determining whether a business meets specific federal requirements. For example, businesses must calculate FTE hours for the Affordable Care Act (ACA) and prove eligibility for certain small business tax credits.
FTE calculation is necessary for accounting, managing projects, and determining labor costs.
With this guide, you will become an expert on calculating FTE. Once you master this, you can use your knowledge to apply for corporate benefits, manage your employee's time wisely, and project labor costs.
Full-time equivalent or FTE hours measure the total number of full-time employees a company has based on the number of hours the employees actually work.
Rather than simply looking at the number of employees a company has, FTE calculations consider the hours that employees work. Generally speaking, one full-time employee is equal to one FTE.
For example, if a company uses 40-hour workweeks, employees who work 40 hours a week are considered 1.0 FTE. Part-time employees account for a portion of an FTE.
In the case of a 40-hour workweek, an employee scheduled to work 20 hours a week would be considered 0.5 FTEs (20 hours divided by 40 hours). Using this calculation, two part-time employees who work 20 hours per week equates to 1.0 FTE.
The 1.0 FTE qualification may change depending on its usage. If businesses or universities count FTEs to qualify for federal programs or meet federal regulations, the federal government will provide those FTE calculation rules.
Determining FTE has many essential and practical applications for businesses. This number can help you apply for critical corporate benefits, make important staffing decisions, or predict labor costs.
Business owners use FTE calculations to improve workload management for various projects. For example, consider a company that is beginning a construction project that requires an estimated 600 hours of work.
Assuming full-time employees work eight hours a day, the company would determine staffing needs with this equation:
8 hours x (number of full-time employees) x (number of days worked) = 600 hours.
In this scenario, the company would need 75 FTEs. Of course, they’ll have some flexibility in how they reach this 75 FTE number.
For example, they could assign seven full-time team members and one half-time team member to complete the project over ten workdays. Or, they can assign five full-time team members to the project for 15 workdays.
Managing your workload properly can improve employee productivity and reduce manual work for your human resources team.
Businesses also use the metric of the number of full-time equivalent employees to estimate labor costs for a project.
For example, suppose a project requires five employees to work a full-time schedule for 15 days. To calculate costs, the business would multiply the average construction wage per day by 15 days. Or, they could use a payroll solution to see what each individual employee makes.
The federal government uses a business’ headcount (defined as FTEs) to determine whether a company complies with federal employee benefits regulations.
As part of their IRS health care filings, organizations determine whether they are Applicable Large Employers (ALEs) under the Affordable Care Act (ACA) definition.
Organizations that have more than 50 FTEs over the course of the year are ALEs. To the ACA, employees who work an average of 30 weekly hours are considered full-time. ALEs fall under the Employer Shared Responsibility Provisions of the ACA. Companies must offer health insurance benefits to at least 95 percent of their full-time workforce.
FTE also dictates whether a small business qualifies for tax credits for providing health benefits. To qualify, the small business must have fewer than 25 FTEs — not counting owners, family members, and seasonal team members.
The business’ average full-time wages must also fall below a specific threshold that changes annually. Additionally, they should offer team members the opportunity for enrollment in a qualified plan on the Small Business Health Options Program marketplace unless the business qualifies for an exception.
An accurate FTE headcount is critical. Here are the steps to calculate the number of FTEs. There are tools that can do this for you automatically, but it’s helpful to know the steps that go into calculating your FTE.
If you want help with this process, HealthCare.gov offers a free FTE calculator. You can use this tool to double-check your calculations or automatically calculate this number.
Ideally, you would be using a time tracking platform with reporting features to track this data in one central location. If you find yourself grabbing a pen and paper to do this step, you’re leaving a lot of room for error.
Let’s take another example, assuming that the organization is calculating the number of FTE employees to determine whether it must provide health benefits under the Affordable Care Act. Under ACA, a full-time work week is 30 hours.
For this example, we will be using the Brown Company, a business that has 20 full-time employees and 50 part-time employees.
The company begins by calculating the number of hours worked by each group of employees.
The 20 full-time employees each work 30 hours a week for 52 weeks.
Required Calculation: 20 x 30 x 52 = 31,200
Out of the part-time employees, 20 worked 15 hours a week for 52 weeks.
Required Calculation: 20 x 15 x 52 = 15,600
20 employees worked 20 hours a week for 52 weeks.
Required Calculation: 20 x 20 x 52 =20,800
Five employees worked 10 hours a week for 30 weeks.
Required Calculation: 5 x 10 x 30=1,500
Five employees worked 10 hours a week for 52 weeks.
Required Calculation: 5 x 10 x 52=2,600
The company adds up all the hours from each group of part-time employees.
Required Calculation: 15,600 + 20,800 + 1,500 + 2,600 = 40,500
The company adds the hours worked by part-time employees to those worked by full-time employees.
Required Calculation: 40,500 + 31,200 = 71,700
To get the FTE count, the company divides this total number of hours worked by the total number of full-time hours in a year.
As a reminder, the ACA has determined that a full-time workweek is equivalent to 30 hours. 30 x 52 weeks is 1,560 hours per year.
Required Calculation: 71,700 / 1,560 = 45.96
The Brown Company has 45.96 FTEs. The ACA does not require the Brown Company to provide health insurance because it has fewer than 50 FTEs.
FTE is a metric that determines how many full-time employees a company has based on hours worked. Knowing your FTE can help with project management and making budget decisions as a business.
Federal laws like the ACA require that businesses report FTEs annually for compliance purposes. The IRS also uses FTE counts to determine if businesses qualify for health care tax credits.
If you’re still feeling confused, keeping track of employees’ time is kind of our thing. Once you have a basic understanding of how FTE works, syncing your project management and time tracking software can save you countless hours of administrative time and calculations.
Curious about how this works? Contact our team for a free demo today.
Contact our team for a free demo today.