What Is FTE and How Do I Calculate Employee FTEs?

FTEs for Paycheck Protection Program and Employer Health Care Plans

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The term full-time equivalent, or FTE, is used in many contexts in employment situations. It is sometimes useful to know how many full-time and part-time employees are working in a business. But some part-time employees work different hours, and they must be included in the calculation of the number of full-time employees. FTEs are calculated in different ways in different federal programs for eligibility purposes.

Full-Time Equivalent Employees for the Paycheck Protection Program

The Paycheck Protection Program (PPP) is a Small Business Administration (SBA) program to help employers keep employees during the coronavirus pandemic. The number of full-time equivalent employees is used to determine the amount of loan forgiveness for borrowers.

Borrowers can use either the average number of FTEs employed per month between Feb. 15, 2019, and June 30, 2019, or between Jan. 1, 2020, and Feb. 29, 2020, to determine whether they meet the criteria for loan forgiveness—this is at the election of the borrower. Employers can use an average number of FTE employees for each pay period falling within a month.

You can use your business's definitions for full-time and part-time employees. When you apply for a PPP loan, you will need to include your documents showing the number of full-time equivalent employees on your payroll.

An Example of How FTE's Are Used

Let's say you have three employees. One works 40 hours a week (full-time), the other two work 25 and 30 hours a week (part-time). The simplest calculation is to add up the total hours worked by all three employees and divide that total by 40. The total of 95 hours divided by 40 is 2.375. You have 2.375 full-time equivalent employees. 

This example is a basic way of calculating FTEs. It isn't used in any of the federal programs discussed in this article.

FTEs in the Health Care Reform Law

In the context of the Affordable Care Act (ACA), FTEs are calculated in a specific way. This calculation of the number of an employer’s FTEs is used for two types of businesses:

Large Employers

FTE's are used in determining whether an employer is an Applicable Large Employer (ALE). Large employers (those with over 50 FTE's) must meet specific requirements, for two parts of the ACA:

Small Businesses

Small-employer health care tax credit provisions allow smaller employers (those with fewer than 50 FTE's) the opportunity to apply for a tax credit of 50% of employer-paid health care premiums.

Calculating FTEs for Large Employers

If you are an applicable large employer (ALE), your responsibilities as an ALE are determined each year, based on the average size of your workforce the prior year. For the purposes of determining whether an employer is an ALE, an employee is counted as full-time if they work 30 hours a week or at least 130 hours during the month. A full-time equivalent employee is a combination of part-time employees who are equivalent to a full-time employee. To find this FTE number:

  • Add up all the hours of service of employees who aren't full-time for the month, up to 120 hours per employee
  • Divide the total by 120
  • Add this number to the number of full-time employees

If you have at least 50 full-time and full-time equivalent employees, you are an ALE for the year.

In your calculation of FTEs for this purpose, don't include:

  • Employees (U.S. Citizens or non-citizens) working outside the U.S.
  • Partners in a partnership
  • S corporation shareholders who own at least 2% of the S corporation
  • Leased employees
  • Real estate agents or direct sellers

The IRS Taxpayer Advocate Service has an Employer Shared Responsibility Provision (ESRP) Estimator to help employers determine FTEs to see if they are applicable large employers.

Calculating FTEs for Small Businesses

To determine your eligibility for the small business tax credit, you'll need to use a different system for counting FTEs. First, count the total number of employees who worked at your company at any time during the year, both full-time and part-time. 

Don't count:

  • Owners, including sole proprietors, partners in a partnership, S corporation shareholders owning more than 2% of the stock, corporate shareholders owning more than 5% of the stock
  • Your spouse, children, or family members or spouses of family members (in other words, if anyone is related to you by marriage or birth or in any other way, don't count this person as an employee)
  • Seasonal workers unless they work more than 120 days during a year

To calculate FTEs for the small business health care tax credit, you can use one of three methods:

  1. Actual hours worked, including pay for vacations, holidays and illness
  2. Days-Worked equivalency, in which each employee is credited with eight hours of service for each day worked
  3. Weeks-worked equivalency, crediting employees with 40 hours of service for each week payments are made or for weeks of paid leave

See this IRS article on FTEs for the Small Business Health Care Tax Credit for more details.

If you want to avoid the lengthy and complicated calculation, you can use the Full-time Equivalent (FTE) Employee Calculator from Healthcare.gov to see if you qualify for the Small Business Health Options Program (SHOP) marketplace. Just be sure to review the exclusions listed above.

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