FTE (Full-time Equivalent): Meaning, Definition

Businesses must determine the number of full-time employees to effectively plan their workforce, comply with laws, and assess federal benefits and program eligibility.

Large organizations employ various full-time, part-time, and flexible employees, which is particularly true. By analyzing the number of hours their employees work, organizations can determine their workload, determine how to allocate their resources more effectively, and complete their projects.

What is FTE?

FTE is also known as whole-time equivalent (WTE); FTE refers to how many full-time employees an organization has.

Employees may work part-time, part-time during certain times of the year, or in various other flexible ways now that a wide range of working options is available.

As a result of this metric, businesses can more effectively organize their headcount by measuring the hours worked by each type of employee.

Using FTE, budget analysts can easily compare headcounts to outputs or profits.

Management and HR can evaluate projects, job descriptions, or employment needs and determine how many FTEs are needed to accomplish the task.

For example:

An individual’s entire work or school day is represented by 1.0 FTE, whereas half of the original figure is represented by 0.5 FTE.

About an individual designated 0.5 usually works or attends classes for less than half a day. This typically means they work or attend classes for less than the standard full-day duration.

The equivalent number of full-time employee hours is one full-time worker on a full-time schedule.

A part-time worker or student working half the company’s official full-time schedule equals one full-time employee.

Four part-time employees work precisely a quarter of the company’s official full-time schedule, equal to one full-time equivalent.

Determining Ftes Is Essential.

A company with a large number of part-time employees should convert worked hours into FTEs to determine how many full-time employees the part-time employees are equivalent to.

For a company, determining FTEs is essential because it gives it a better idea of how practical and valuable its part-time workers are based on the amount of work they perform and, most importantly.

After all, part-time workers are often paid less and do not obtain the same benefits as full-time employees.

Calculating Full-Time Equivalent

The FTE of a full-time employee is calculated by comparing the hours worked to a full-time weekly schedule and the actual hours performed.

Calculate FTE for an annual count by following these steps.

List your employees and their hours of work.

Deduct approved leave hours, such as paid time off and sick leave, from the list of all employees paid with a year-end W-2 form.

Determine the number of hours considered full-time.

The definition of full-time employees is typically based on their weekly maximum working hours, usually 40 hours. An employee working fewer hours than this is considered part-time.

If a company defines a full-time role as 30 hours per week, an employee working less than 30 hours would be considered part-time.

Calculate the number of hours worked per year.

Multiply the number of weekly hours by 52 weeks in a year.

Add up all the hours you work full-time.

Count all the full-time hours your full-time employees have worked.

The total number of part-time hours should be added up

Your part-time employees should add up all their part-time hours.

Calculate the part-time FTE.

Separate the total hours performed by part-time employees by the annual hours worked by full-time employees.

If an employer considers 40 hours a week as full-time, then employees who work 40 hours each count as one full-time employee, while employees who work 20 hours per week are considered half-time employees.

Depending on the requirements of the business, several combinations might be made. In this case, two part-time employees would count as 1.0 FTE, and four part-time employees would count as 2 FTE.

What Purpose are FTEs Calculated?

For various reasons, including workforce planning and adhering to ACA employment laws, identifying which employees are FTEs is essential.

Planning for the workforce

With the calculation of FTEs, employers can plan their workforce more effectively. By forecasting the number of people needed to meet a specific demand, estimating the labor costs associated with particular projects is possible.

Therefore, this information allows for more accurate budgeting and headcount analysis.
A 600-hour project can be completed using different staffing and time frames, such as using 15 full-time workers over five days (600 hours / 40 hours per worker), 30 part-time employees in 5 days, one full-time employee in 15 weeks, or a combination of these options.

Companies can keep costs down by deploying staff across various departments instead of hiring new employees.

For any project, management can determine how many full-time employees are needed based on the work that needs to be done and then assign those employees to those positions.

Employers can also use FTEs to determine when to hire personnel for temporary tasks. Given that FTE counts the hours spent, an organization can calculate how many full-time and part-time employees it needs to complete a job, determining the most cost-effective staffing method.

As a result, calculating FTEs and scheduling projects based on them allows for better workforce planning and resource allocation.

Affordable Care Act

Employer’s responsibilities under the Affordable Care Act will also be determined by calculating FTEs.

Whether they are an applicable major employer (ALE) and, if so, whether the liability provisions—also known as “the employer mandate” or “pay-or-play provisions”—apply to them.

If so, they must provide minimum necessary health coverage or pay an employer shared responsibility tax. They are required to pay the IRS this sum.

An employer’s size is the determining factor to see if it will be classified as an ALE. Those with an average of 50 full-time workers, including FTEs, fit this definition.

Those who employed less than 50 full-time staff in the previous year wouldn’t be identified as an ALE for the current one and thus don’t have to meet shared responsibility provisions.

For the purposes of these laws, a full-time employee works, on average, at least 30 hours per week or 130 hours per month.

Most employers do not fall under the definition of an ALE since they still need to meet the minimum requirement.

According to the shared responsibility clauses, an ALE must:

Minimum Essential Coverage: ALE must provide their FTEs with health insurance that is affordable and that provides minimum essential coverage for them as well as their dependents. If they do not, employers may be liable for a shared responsibility payment, also known as a Section 4980H penalty. Several factors will determine the payment amount, such as the number of employees and how long the employer still needs to provide minimum essential coverage.

Information Reporting Requirements: ALEs are also required to provide information about the minimum essential health cover that employers have offered to their employees, including the cost and the period for which it was submitted, to each full-time employee and the IRS.

Access To Benefits And Programs

FTE is also used to define eligibility for specific federal programs and benefits, including:

The Paycheck Protection Program (PPP): This program provides small businesses with financial assistance of up to eight weeks through low-interest loans enabling employers to meet their payroll costs and other expenses. Under certain circumstances, the funds given under the PPP will be forgiven.

After the loan disbursement, an organization must maintain the same full-time employees to qualify for PPP loan forgiveness.

The FTE metric is essential when determining whether a small business is suitable for a small business tax credit for employer-paid health maintenance premiums.

Those employers who qualify must employ fewer than 25 full-time employees in total. They may apply for a 50% tax credit on employer-paid health care premiums.

To determine the small business tax credit, an FTE is equivalent to 2,080 hours per year, and the total number of employees is considered instead of their worked hours.

Specific individuals, such as owners, partners, shareholders, family members, and seasonal workers with less than 120 hours of work per year, are exempt from this calculation.


In conclusion, FTEs provide companies with a comprehensive view of their workforce, enabling them to make informed decisions about staffing and workforce planning, assess the value of part-time employees, and stay compliant with the laws.

Calculating FTEs is crucial for businesses, as it helps them effectively manage their workforce and remain compliant with the regulations, such as the Affordable Care Act.

It also assists in determining the company’s eligibility for certain federal benefits and programs.

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