FTE Guide: How to Calculate Full-Time Equivalent

FTE stands for full-time equivalent, which is a metric used to estimate the total number of full-time employees a company has based on the total number of hours worked, rather than the number of people employed. The full-time equivalent can provide a sense of a company’s actual staffing needs, by factoring in the contributions of part-time employees.

Determining a company’s total FTE is often better than just taking a headcount as it shows the amount of work hours put into any given workweek by both full-time workers and part-time workers. Companies use FTE numbers for many reasons, including project management, improved staffing, and tracking the number of employees across a period of time.

• Calculating total work hours: Many companies will calculate their FTE to determine how many total working hours are being put in by their employees, which can be helpful when evaluating the efficiency and costs of a business. It can also help determine if some workers are putting in too many or too few hours.
• Evaluating part-time contributions: Calculating FTE can help companies make staffing decisions by showing the value of part-time or half-time workers.
• Fulfilling tax obligations: Many companies are required by the Internal Revenue Service (IRS) to calculate their FTE at the end of the fiscal year. If their FTE count shows that they have more than fifty full-time equivalent workers, they may be considered an applicable large employer (ALE) and must comply with certain health insurance and health benefit regulations dictated by the United States healthcare system’s Affordable Care Act (ACA).

While there are many online templates for FTE calculation, you can do it yourself in three easy steps. Note that the weekly hours of seasonal workers, business owners or owner partners, family members, and most shareholders do not count towards the total and shouldn’t be factored into your calculations.

1. 1. Determine the total number of paid hours worked by all employees in a given time period, including part-time hours and full-time hours. Human resources or a project manager often tracks this number.
2. 2. Determine the average number of hours allotted to each full-time employee working on a full-time schedule during a given period. For example, if your full-time employees work 40 hours per week and you want to calculate your annual FTE, multiply 40 hours by the 52 weeks in a year to get 2,080 hours.
3. 3. Divide the total hours worked by the full-time hours allotted to each employee to get the number of full-time equivalent employees. For example, if the total number of hours worked was 5,000, you would find that you have 2.4 FTEs, when in reality you have one full-time employee and three part-timers.

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