FTE Meaning: What Does FTE Mean In Business?

At 50 FTEs, you’re required by the ACA to provide health insurance to your employees and by the FMLA to allow employees to take up to 12 weeks of leave for qualifying conditions. Full-time equivalent, or FTE, measures the total amount of full-time employees working at any one organisation. It is a way of adding up the hours of full-time, part-time and various other types of employees into measurable ‘full-time’ units. With the variety of working options available today some employees may work part-time while others may only work at certain times of the year or in several other flexible ways. This metric provides a useful way to measure all of the hours worked by each type of employee thereby helping businesses organize their headcount more effectively.

Generally, employers can offer vacation and other voluntary benefits to full-time employees and not part-time employees. However, many employers do offer vacation to part-time employees, usually on a pro rata basis. This unit of measurement is calculated by taking the average number of hours x worked per day multiplied by the number of days y worked per week. To get FTE for the year, divide the total annual hours worked by 2080, which assumes a 40-hour workweek for 52 weeks of the year. To calculate for the month, divide by 173.33, which is equivalent to 2080 hours divided by 12 months.

She is passionate about economic development and is on the board of two non-profit organizations seeking to revitalize her former railroad town. Prior to joining the team at Forbes Advisor, Cassie was a Content Operations Manager and Copywriting Manager at Fit Small Business. Monique Danao is a journalist and freelance writer who has worked with several startups and tech companies. Her work has been published in Sitepoint, Fast Capital 360, Social Media Today, WPMayor among other publications. For example, 1.0 is typically the FTE representation of an individual’s full work/school day, while 0.5 would indicate half of the original figure, generally in reference to the workday. In reference to an individual, 0.5 usually refers to the fact that the worker renders less than a full day of work or the student attends less than a full day of classes.

In the context of the Health Care Reform Act, the Affordable Health Care Act requires the calculations that determine whether a business is classified as owned by a large employer or a small business. These calculations are used to clarify the company’s obligations regarding employee health benefits. Since both are considered to be full-time schedules in their respective companies, both count as a 100% or 1.0 FTE. Imagine you are a human capital manager who has lost four employees and needs to replace their hours.

Sign up to receive more well-researched human resources articles and topics in your inbox, personalized for you. Determining the FTE of your company is crucial for its productivity. Imagine that, with the same FTE, an employee can deliver 100 units, while another only delivers 30. In this case, the calculation may show that the first professional is overqualified for the position, whilst the other needs more training and development.

Step 1. List all of your employees and hours worked

In short, it is a crucial term that is important for HR speciameaning of ftes and accountants alike. As you will understand by the end of this article, there are plenty of situations in which knowing the meaning of FTE and how to calculate it can be quite useful. FTE refers to one full-time employee or the equivalent of a full-time employee.

However, there are a few variations on this formula, depending on what you want to include. For example, you can choose to include only paid hours, or you can include both paid and unpaid hours . This is because the purpose of an FTE is not to see how many employees you have, but rather to measure the amount of work that’s being done. In other words, it allows you to compare different types of staffing arrangements on a level playing field.

Step 3. Calculate annual hours worked

The calculator will tell how many full-time employees that represents and whether or not you are an Applicable Large Employer. The expected length of a full-time schedule has changed a lot throughout history — full-time employees now work about 20 or 30 hours per week less than they did in the 19th century. A full-time equivalent — also known as a whole-time equivalent or WTE — represents the sum of all full-time hours employees work in a certain company. Along with counting the hours worked, FTEs show how many full-time employees a particular company employs within a fiscal year or needs to employ to carry out a project. You’ll also need to know the actual number of weekly work hours to complete the FTE calculation. Actual hours worked per week is the exact number of hours an employee worked.

For the year 2021, the maximum benefit equals $28,000 for the entire year. The calculation is straightforward — divide the employee’s scheduled hours by the number of hours that represent an official weekly full-time schedule in a company (e.g., 40 hours per week). For example, you could use it to calculate the amount of staff you need to cover a certain number of hours, or to compare the cost of part-time and full-time employees.

In contrast, non-exempt positions who typically work only 28 hours per week on a 0.75 FTE schedule do not qualify, even if the employer policy defines them as full-time. Considering that the FTE unit of measure is based on the total number of hours worked — it may not indicate the actual number of people working in a company. There are many ways that you can measure the people power and resources in your company, like tracking worked hours, or using a simple head count. In order to get a more accurate and nuanced understanding of your team’s human capital, however, you should use Full-Time Equivalents . In a nutshell, FTE is an acronym for full-time equivalent — a figure that reflects the number of full-time workers in your company.

FTE has other meanings in various contexts outside of human resources and accounting. Since the letters F, T, and E begin several words, this acronym can stand for many phrases other than full-time equivalent. FTE salary calculation might be used to weigh against business expenses as well as other things like mortgages, rent, and even planning project work like deadlines and budgets. For the most accurate FTE calculation, hire a tax lawyer or accountant to calculate them for you. You may need to combine multiple systems to track more complicated metrics. Select relevant KPIs that are connected to business goals and set a target score for each KPI.

What Is Full-Time Equivalent (FTE) & How Is It Calculated?

Our model will then instantly calculate the Full Time Equivalent for you. With 14 employees, 7 of which are full-time and 7 part-time, the staffing capacity is 9.04 full-time employees per year. For example, you may have one staff member working 30 hours a week, another working 50 hours a week, and a third who worked 40 hours a week. Considering the average FTE or full-time working week is 40 hours, this means you have 3 full-time staff. Identifying full-time staff is not as easy as saying, “You work 40 hours a week. You’re full time.” Not when some employees work 50 hours some weeks, and 30 other weeks.

However, if one of them only works 20 hours per week, then you will need to bring in another part-time worker to meet the FTE requirement. To calculate Sarah’s FTE, we need to divide her hours worked by the number of hours worked by full-time employees . This gives us a figure of 0.7, which means that Sarah is equivalent to 0.7 FTEs. Additionally, FTE calculations give you a better sense of your current staffing levels so that you can plan and budget accordingly. Using time tracking software, like Homebase, will allow you to run a historical report based on employee work history and status to gather the average hours worked using custom fields.

How Horizons Can Help You Hire Full-Time Employees

A part-time employee who works 10 hours per week would have an FTE of 0.25. Under normal circumstances, a full-time employee works 8 hours a day for 5 days a week. That would mean that a full-time employee would work an approximate of 40 hours a week and 160 hours a month.

For example, imagine the project will involve designing a new website. The design phase might take 35 hours, the development phase might take 40 hours, and the testing phase might take 25 hours. You are a project manager, and you are trying to make arrangements for an upcoming project. In order to get the project underway, you need to know how many hours it will take, and therefore how many people you will need. This calculation can be very confusing if you’re not used to it, so to make things as clear as possible, let’s look at an example for calculating the FTE of a single employee.

In other words, do you know what the full time equivalent is and how it can help you better understand the needs of your organization? If you don’t know what it means, you should, as this metric can help you make important decisions. Through the full time equivalent calculation, it is possible to identify whether your small business needs to hire, restucture or reduce its staff, for example. If you are such an employer, then you are eligible to apply for a tax credit in the amount of 50% of employer-paid health care premiums.

FTE stands for full-time equivalent and measures how many full-time employees an organization has. This is how a company, on average, calculates the average yearly number of hours that a full-time employee works. A full-time equivalent, sometimes abbreviated as FTE, is a unit to measure employed persons or students in a way that makes them comparable although they may work or study a different number of hours per week.

For part-time employees — Employees who worked less than 40 hours per week on average during a specific calculation period will have their average hours worked on a weekly basis added together. Divide this total number by 40, and then round the total to the nearest tenth to get the total FTE. The definitions of full-time and part-time vary depending on law and policy. Most employers determine full-time status based on business needs and typically consider an employee to be full-time if they work anywhere from 32 to 40 or more hours per week. Regardless of your company’s definition of full-time status, coverage under various employment laws is based on the definition provided in the law. For instance, under the Affordable Care Act , full-time means working, on average, at least 30 hours per week.

As evident, once you have the total number of hours per day, you’ll be able to pick whatever days/employees ratio you want to carry out the estimated workload. Bear in mind that these are just simple FTE example calculations — project managers approach FTE from a different angle while federal programs use different FTE calculation methods. However, bear in mind that this only applies to positions that work 30 hours per week when assigned a 0.75 FTE position, i.e., the IRS minimum for a full-time definition.

• Labor CostCost of labor is the remuneration paid in the form of wages and salaries to the employees.
• Her company has a 5-day work week, and full-time employees work 8 hours per day.
• FTE counts the approximate number of full-time employees employed by a specific company, but with the inclusion of part-time employees.
• With Clockify, you can easily track your cost rates per employee and then compare and contrast them with employee billable hourly rates.

This is particularly true for large organizations that employ a variety of full-time, part-time, and flexible staff. 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. Many states require employers to provide meal periods and rest breaks to employees, depending on the length of their shifts.

For instance, in terms of business, calculating FTEs may be of great use when determining how many hours part-time employees should work to equal the number of hours full-time employees work. Such calculations facilitate accounting processes such as estimating wages, payroll, costs, etc. There are some exceptions when calculating FTE for the purposes of the small business tax credit.

• Your financial situation is unique and the products and services we review may not be right for your circumstances.
• Now that we’ve got that out of the way, let’s take a look at how to calculate FTE.
• Actual hours worked per week is the exact number of hours an employee worked.
• Projects can then be allocated based on how much work is required and the expected delivery.
• This could be an employee who works 20 hours a week, an intern who works one day a week, or an employee who is on call or only works weekends.
• Let’s say those 35 employees all work 20 hours per week, while the remaining 165 work 40 hours per week (considered full-time at your organization).

If a company has work schedule of 40 hours a week, the employees expected to work 40 hours per week are 1.0 Full Time Equivalents. The purpose of FTE calculating the equivalent of full time employee hours worked by all of the employees of a company. With this perspective on the FTE value, resource management can determine the number of full-time, part-time, contract, and seasonal workers to hire that makes the most sense for a company’s budget. Suppose a company currently has 50 full-time employees on its payroll, along with 10 part-time employees. FTE counts the approximate number of full-time employees employed by a specific company, but with the inclusion of part-time employees. FTE and headcount are two different resource management methods that HR can combine with other key metrics to analyze, report, and plan effectively.

To calculate headcount, all you have to do is add up all your employees. This includes full-time, part-time, seasonal, and temporary workers. Let’s say those 35 employees all work 20 hours per week, while the remaining 165 work 40 hours per week (considered full-time at your organization). Now add the total number of hours worked by full-time employees to that of part-time employees to get the total number of hours for all employees. Based on an FTE of 1.0, we calculate employees work 2,080 hours per year. Furthermore, this value is used only as a basis for calculating the annual FTE and reflects the hours of an employee who works 5 days a week, 8 hours a day.

Some health insurance policies through the Affordable Care Act are only available to businesses that have certain FTEs. For example, the Small Business Health Options Program requires you to have fewer than 50 FTEs to qualify. If you have more than 50 FTEs, then your business must offer 12 weeks of family and medical leave as well as more comprehensive health insurance plans.

Massimo Villa