Full-Time Equivalent (FTE) is a metric to gauge the total working hours of employees in a company. It’s sometimes called Whole-Time Equivalent (WTE).
How to Calculate FTE?
Determine the total hours worked by all employees, divide by 40, and round to two decimal points:
Total hours by all employees ÷ 40 = FTE
E.g.: If seven employees work a combined 170 hours weekly, the FTE is: 170 ÷ 40 = 4.25
Essentially, your company operates with the equivalent of 4.25 full-time employees.
Applications of FTE
- Business planning. HR departments use FTE to strategize staffing. By assessing the total hours needed for the company or a project, FTE provides a clearer picture of staffing requirements.
- Government program eligibility. In the U.S., programs like the Paycheck Protection Program (PPP) use FTE to determine if businesses qualify for them. The metric also helps businesses ascertain if they’re considered an Applicable Large Employer (ALE) and if they’re eligible for certain tax credits.
FTE employee criteria
Typically, an FTE employee works 40 hours weekly (or 2,800 hours annually). While many businesses recognize a 40-hour week as full-time, the IRS (the Internal Revenue Service) views 30 hours weekly (or 130 hours monthly) as the threshold. Some businesses set a 37.5-hour week, excluding the daily half-hour break.
Understanding FTE percentages
- FTE 100% (or FTE 1.0) represents a full-time worker. This can be one person working 40 hours or several part-timers together, equating to 40 hours.
- E.g.: An ice cream truck operating 20 hours weekly needs 0.5 FTE. If it runs daily, it requires 0.875 FTE. Two trucks running simultaneously need 1.75 FTEs.
- 0.5 FTE refers to a part-time position, roughly 20 hours weekly. Such roles might include project leads or supervisors who don’t need to work full weeks.
Special FTE considerations
ALE (Applicable Large Employer) status. For determining ALE status in the U.S., the Internal Revenue Service sets a 30-hour work week as the standard.
Small business tax credit. For U.S. companies, this credit assists in covering employee health benefits costs. Eligibility criteria include having fewer than 25 FTEs.
FTEs for this purpose can be calculated in three ways: (1) actual hours worked, (2) days-worked equivalency, or (3) weeks-worked equivalency, with the final FTE count determined by dividing total hours by 2,080.
PPP eligibility. For the Paycheck Protection Program, FTE helps in loan amount determination. FTEs are averaged over specific past periods to determine the figure.
***
Summing up, FTE is a versatile metric used by businesses for diverse purposes, ranging from staffing to regulatory compliance. It’s crucial to understand its nuances and apply the appropriate calculation method based on context.