Full-time equivalents (FTEs) is a metric that measures the total number of full-time employees you have based on hours worked rather than the exact number of employees. Each part-time employee counts as a fraction of one FTE based on how many hours they work on average.
Knowing your number of FTEs is important for assessing business performance, and it's required under the Affordable Healthcare Act (ACA) and for certain tax credits. The method for calculating FTE is slightly different for each of these uses. Learn how to calculate it for every business purpose.
What Are Full-Time Equivalents?
It is sometimes useful to know how the total number of full-time and part-time employees are working in a business. But, in many situations, a business needs to view or report its staffing level in terms of full-time work.
Each employee that works full time is equal to 1.0 FTE. A part-time worker who works half-time would be equivalent to 0.5 FTE. Your total FTE is a sum total of every employee's FTE number.
- Acronym: FTE
How Do You Calculate Full-Time Equivalents?
FTEs are calculated in different ways for different accounting uses or for calculating eligibility for different federal programs. Let's look at three of the most common.
Calculating FTEs for Standard Accounting
When calculating your FTEs for basic accounting or business purposes, the simplest way to do it is to divide total annual work hours for all employees by an average full-time annual work schedule.
A typical full-time schedule is 40 hours per week, 52 weeks per year, which totals 2,080 hours. So, in this case, you would add up all employee hours for the year and divide by 2,080. Round your answer down to get your full-time equivalents. If your company considers 35 hours full-time, then you would adjust your calculation accordingly.
You typically would not include hours that owners or partners work within this calculation, but you can do so for your own accounting purposes if you want to include labor from ownership as part of your evaluation.
Calculating FTEs for Large Employers Under the ACA
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:
If you have at least 50 FTEs employees, you are an ALE for the year, which means you are subject to specific reporting requirements and share responsibilities under the ACA. The IRS Taxpayer Advocate Service has an Employer Shared Responsibility Provision (ESRP) Estimator to help you determine FTEs and see if you qualify as an ALE.
In your calculation of FTEs for this purpose, don't include:
- Some employees (U.S. citizens or noncitizens) 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
Calculating FTEs for the Small Businesses Tax Credit
Under the ACA, certain small businesses are eligible for a small-business tax credit to help with the costs of offering health benefits to employees. One qualification for this credit is that the business must have 25 or fewer FTEs.
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.
- Owners, including sole proprietors, partners in a partnership, S corporation shareholders owning more than 2% of the stock, or corporate shareholders owning more than 5% of the stock
- Your spouse, children, 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:
- Actual hours worked, including pay for vacations, holidays, and illness
- Days-worked equivalency, in which each employee is credited with eight hours of service for each day worked
- Weeks-worked equivalency, crediting employees with 40 hours of service for each week payments are made or for weeks of paid leave
You can apply different methods for different classifications of employees, as long as you apply the method consistently within each classification. Once you have a total number of hours, divide by 2,080 and round down for your FTE.
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.
How FTEs Work
Knowing your total number of full-time equivalent employees is important for several reasons. You can use this number to:
- Evaluate how much labor it takes to run your business.
- Assess the productivity of your part-time workforce.
- Calculate important business metrics such as revenue or profits per employee.
- Plan for projects based on the number of FTEs required to complete them.
- Determine requirements and possible credits under the ACA.
FTE Employees for the Paycheck Protection Program
The Paycheck Protection Program (PPP) is a Small Business Administration (SBA) program to help employers retain employees during the public health and economic crisis. 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.
- Full-time equivalents (FTEs) is a metric used to show you what your total labor hours equates to in full-time employees.
- Part-time employees are included as a fraction of one FTE based on how much they work.
- Business use FTEs to measure performance, plan labor, and for certain regulations under the ACA.
- PPP loan forgiveness is also based partly on FTEs.