what is full-time equivalent or fte

What Is Full-Time Equivalent and How Do You Calculate It?

If you’ve been managing employees for some time, you’ve likely come across the term “full-time equivalent”. Perhaps you encountered it while you were getting details about the Paycheck Protection Program loan. On the other hand, you may be wondering if your company is required to provide health insurance according to the regulations of the Affordable Care Act. Whatever the case may be, you need to learn how to calculate FTE salary.

What Does Full-Time Equivalent Mean?

Full-time equivalent is a measurement unit for the total hours worked that equates to the number of full-time employees of a company within a fiscal year. Also referred to as whole-time equivalent (WTE), FTE determines the number of people or work hours a business needs to complete a project. Outside corporate settings, full-time equivalent is also used to measure a student’s involvement in a project or their class load.

What Is Full-Time Equivalent Used For?

If you have part-time employees in your company, learning how to calculate FTE will give you an insight into the productivity of your workforce. Here are some of the ways you can use the full-time equivalent calculation:

Analyzing Employee Performance

While it is important to know the appropriate number of workers, it is also crucial to get insights into your company’s overall performance. Using a full-time equivalent calculator shows your productivity against the number of employees you pay.

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Efficient Human Resource Management

HR can make more profitable decisions when they are able to calculate FTE. The data is particularly important when managing a company’s workforce. It allows HR practitioners to assess the trends in the job market efficiently. Moreover, the full-time equivalent calculation helps them make appropriate changes to teams to accommodate a company’s needs.

Easier Project Management

If your workforce is under different employment contracts, you can easily assign projects to people according to their performance. By calculating full-time equivalent, you know who’s more productive regardless of the number of hours they work per week.

Compliance with Appropriate Labor Laws

Learning how to calculate FTE also allows you to determine which labor laws apply to your business operations.

Accurate Productivity Comparison

If you want to compare the different productive capabilities of departments and companies, you can easily do so by calculating FTE. After all, you may get inaccurate data when you use the number of employees alone as a basis for performance evaluation.

Pro Tip: Use a Time Tracker to Easily Calculate Labor Costs

It can be difficult to calculate FTE if you don’t have a systematic way of monitoring the number of hours your employees work per week. You may use the traditional Bundy clock or ask your workers to maintain a spreadsheet for attendance. However, these methods can be inconvenient and inaccurate. Your HR personnel may have to manually calculate total billable hours per month and may end up making mistakes.

Using Traqq is a more efficient way to track work hours. Once your employees have installed the app, all they need to do is click Start on the desktop widget. The tool will automatically record their work hours and run discreetly in the background. On the dashboard, managers can create individual or team reports on billable hours. These reports can be exported as CSV or PDF files. They can also email the reports via the dashboard. In any case, they will end up with accurate data on the total number of hours their employees worked.

How Do You Define a Full-Time Equivalent Employee?

Combining the hours of your part-time employees will let you determine how many full-time equivalent workers you have. As we’ve mentioned, there are several reasons why you should calculate FTE. However, the most important among them is labor law compliance. If you don’t want to fall into legal troubles, you should know how many full-time equivalent employees you have.

However, remember that not all labor laws apply to your business operations. It will always depend on the number of workers you have. Moreover, the number of FTEs in your company will determine your threshold. In simpler terms, you will know which employment laws to follow based on the number of full-time equivalent employees in your business. Here are some of the programs and laws that require you to calculate your FTE:

  • Paycheck Protection Program (PPP)
  • Affordable Care Act (ACA)
  • Consolidated Omnibus Budget Reconciliation Act (COBRA)
  • Employee Retention Credit (ERC)

Paycheck Protection Program

When the Coronavirus Aid, Relief, and Economic Security Act was implemented, it included the Paycheck Protection Program. It provides small businesses with forgivable loans that can cover business expenses that extend for up to 24 weeks. These expenses include mortgage interest, payroll costs, utilities, and rent.

With the PPP, small businesses can keep their employees on payroll amidst the health and economic crisis. 60% of the loan can go to payroll costs, while 40% can go to other expenses like utilities, mortgages, and rent. However, before applying for a PPP loan, you need to calculate the number of your FTE employees. Moreover, you need to indicate how you spend your company’s money, including the amount that goes to salaries. These factors will allow the lender to determine loan forgiveness during the covered period.

Now, how many hours is a full-time equivalent if you’re calculating for the PPP? Here are two ways to determine that:

●       Determine the average billable hours of each employee per week. Divide the amount by 40, then round that to the nearest tenth (1.0 maximum).

●       If an employee is working for less than 40 hours a week, you assign a 0.5 to them. Meanwhile, if a worker logs at least 40 hours, then assign a 1.0 to them.

Your FTE employee reductions will determine how the Small Business Administration (SBA) will reduce your PPP loan forgiveness.

Affordable Care Act

If an employee is eligible, the Affordable Care Act should help them reduce their health insurance coverage. The law includes tax credits and cost-sharing reductions to lower the coverage for lower-income individuals and families. Under the act, small group health plans must meet certain requirements. An example would be essential health coverage like preventative services.

According to the ACA, a company may be subject to the employer shared responsibility provisions laid out by the IRS. Applicable large employers (ALE) must ensure any of the following:

●       Full-time workers and their dependents must receive minimum essential coverage that promises “minimum value” and “affordability”.

●       They should make employer shared responsibility payments to the IRS.

If your company had an average of at least 50 FTE employees in the previous calendar year, you are subject to employer shared responsibility. Now, how many hours is a full-time equivalent? If an individual works at least 30 hours per week or 130 hours per calendar month, the ACA considers them as a full-time employee.

Consolidated Omnibus Budget Reconciliation Act

The Consolidated Omnibus Budget Reconciliation Act is another law that covers companies with full-time equivalent employees. Even if workers, covered spouses, and dependents become ineligible for the health insurance coverage provided by the company, the act allows them to continue it temporarily. COBRA specifies how an individual qualifies for the coverage. It also indicates how long the coverage lasts and under what circumstances an employer must grant it.

If an employer meets the following criteria, they must provide COBRA continuation coverage to their employees:

●       They had at least 20 full-time equivalent workers on more than 50% of their typical operational days in the previous calendar year.

●       Their employees receive private-sector group health plans.

Employee Retention Credit

The CARES Act also provides relief measures for businesses through the Employee Retention Credit. Eligible employers who maintained the required number of employees on their payroll can claim a fully refundable tax credit. The amount is equivalent to 50% of qualified salaries that covered employers paid their workers after March 12, 2020 and before January 1, 2021.

Compensations and wages that employers paid during the covered period qualify for the Employee Retention Credit. Even health plan expenses included in the wages are included in the tax credit. Moreover, the number of full-time equivalent employees your business had in 2019 affects the amount of the credit.

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If your average number of FTE workers was fewer than 100 in 2019, the credit will be based on the wages you paid to all your employees. Meanwhile, if you had more than 100 FTE workers, the employees who did not work during the period will determine the credit amount.

How Do You Compute Full-Time Equivalent Employees?

The program or law will determine how you will calculate your full-time equivalent workers. In general, you need to identify the average billable hours of your part-time employees during a certain period. Once you’ve done that, you divide that number by 40, which is the number of hours in a standard workweek. You then add that amount to the number of full-time employees. Even so, the full-time equivalent computation will still vary depending on the program or law.

In most cases, you can use the following formula to determine the number of FTE employees in your company:

[(Number of Part-Time Employees X Total Number of Part-Time Hours Logged Per Period) / (Full-Time Hours for the Period)] + Number of Full-Time Employees = Full-Time Equivalent Employees

Let’s take a look at examples of calculating FTE according to the government-mandated programs.

Calculating FTE for the Paycheck Protection Program

If you’re after loan forgiveness under the Paycheck Protection Program, your lender will consider your average number of FTE workers during the loan disbursement period. As we’ve previously shared, you can determine your full-time equivalent employees by doing any of the following:

●       Determine the average billable hours of each employee per week. Divide the amount by 40, then round that to the nearest tenth (maximum, 1.0).

●       If an employee is working for less than 40 hours a week, you assign a 0.5 to them. Meanwhile, if a worker logs at least 40 hours, then assign a 1.0 to them.

Let’s use the first method for our example and say that your company has ten employees. Some of them work at least 40 hours per week, while others work part-time. Let’s list their average number of hours per week:

●       Worker 1: 25 hours

●       Worker 2: 40 hours

●       Worker 3: 28 hours

●       Worker 4: 20 hours

●       Worker 5: 40 hours

●       Worker 6: 40 hours

●       Worker 7: 25 hours

●       Worker 8: 20 hours

●       Worker 9: 40 hours

●       Worker 10: 25 hours

The total number of hours of your employees during the week is 303. To get your FTE total, you need to divide that amount by 40 hours.

303 hours / 40 hours = 7.575 FTE employees

Now, you need to round that number to the nearest tenth. So, your FTE total is 7.6.

You can also find the loan forgiveness reduction amount for the covered period. During the height of the pandemic, many companies couldn’t afford to keep their entire workforce. So, if you manage to retain more employees on your payroll, you can request loan forgiveness. All you need to do is determine the average number of FTE workers during the covered period. Then, you divide that by your average number of FTE employees during the reference period. The quotient will determine how much of your loan is forgivable.

Calculating FTE for the Affordable Care Act

As we’ve mentioned, under the Affordable Care Act, your company is subject to employer shared responsibility. This applies to you if, during the previous calendar year, you had at least 50 full-time equivalent employees. According to the rules of the ACA, if an individual works at least 130 hours per calendar month or 30 hours per week, they are considered a full-time employee.

Let’s say you have 43 full-time employees and 22 part-time workers who log around 60 hours per month. If you want to know how many FTE employees you have, you need to multiply the number of part-time workers by the average number of hours they log in a month. The computation should look like this:

22 part-time employees X 60 hours = 1,320 hours

After that, you will divide the part-time hours by the number of full-time hours in a month. Since a full-time employee works at least 30 hours per week, their total hours in a month would be 120. Here’s how you can calculate the full-time equivalent of your part-time workers:

1,320 hours / 120 hours =11 full-time equivalent employees

Finally, you will add the number of FTE part-time employees to your actual full-time workers:

11 FTE part-time employees + 43 full-time workers = 54 full-time equivalent employees

For that particular month, you have 54 full-time equivalent employees. Now, what if you need to know the average number of FTE workers in a calendar year? Well, compute your FTE employees per month, get the total, then divide it by 12.

Calculating FTE for the Consolidated Omnibus Budget Reconciliation Act

Let’s say your company considers people working at least 40 hours per week as full-time employees. Meanwhile, you have 20 full-time workers and 16 part-timers who log about 20 hours per week. To calculate the full-time equivalent for COBRA, multiply the number of part-time employees by their average hours per week.

16 part-timers X 20 hours per week = 320 hours

Now, you divide their hours by the hours required for an employee to be considered full-time:

320 hours / 40 hours = 8 employees

In our example, the part-timers are equivalent to eight full-time workers. Finally, you add that number to the actual number of full-time employees:

8 FTE part-time workers + 20 full-time workers = 28 full-time equivalent employees

To get the number of your full-time equivalent workers for a calendar year, get the total FTE number per week. Then, divide that by the number of weeks in a year (52 weeks).

Remember the circumstances under which you are eligible for COBRA continuation coverage:

●       If you had more than 20 FTE workers on more than 50% of your usual business days in the previous calendar year

●       If you offer a private-sector group health plan to your employees

Calculating FTE for Employee Retention Credit

If your average number of FTE workers in 2019 was fewer than 100, the Employee Retention Credit will be based on the wages paid to all your employees. Now, what if you had more than 100 FTE workers in 2019? In that case, the credit will be based on the wages you paid to the people who did not work during the period. To know if you averaged more than 100 FTE employees for the period, get the sum of your FTE workers per month. Divide that amount by 12.

Let’s use this list as an example:

FTE examples table

Since you have fewer than 100 full-time equivalent workers for the calendar year, your tax credit will be based on the wages paid to all employees.

Conclusion

There are various scenarios that may require you to compute FTE. Apart from helping you plan your deadlines, projects, and budget, it will also let you comply with labor law requirements. Moreover, knowing the number of full-time equivalent employees in your company will allow you to claim tax credits and other government benefits. It is an easy way to determine if your company is eligible for certain federal programs.

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