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Full-Time Equivalent FTE: Meaning & Examples

Before we delve into how to calculate it, there are a few important points to note. In practice, these numbers still usually fall somewhere between 32 and 40 hours per week, with 40 hours per week (8 hours per day, 5 days per week) being a common norm for a full-time schedule. However, the IRS mandates only 30 hours per week or 130 hours per month for an employee in the US to be considered full-time in terms of the type of employment. Three of them work full-time (40 hours per week respectively) and the rest work 10 and 5 hours in total.

• In other words, it is the hours worked by a single employee on a full-time basis.
• If so, confirm you’re offering the right level of health insurance to your team to prevent a tax penalty.
• The definition of Full Time Equivalent could be stated at it’s a unit of measurement that represents an employee’s work hours on a weekly full-time basis.
• In most cases, employers fall below the threshold required to be an ALE and are, therefore, not subject to the employer shared responsibility provisions.
• The definition of Full Time Equivalent in salary is necessary for accounting, as well as calculating the company’s costs while compensating its employees.

In our example, we will divide the total hours worked by Employees D and E by the number of hours worked by Employees A. To calculate the total FTE, add the number of FTEs worked by full-time employees (1 FTE for each full-time worker) to the part-time FTE you calculated in step five. To identify the FTE of part-time employees, divide the total hours worked by part-time employees by the annual hours worked by one full-time employee (i.e., 2,080 hours).

Use case 1: staff replacement

Let’s say you have two hires working 40 hours per week, three part-timers each working 20 hours per week, and two people with flexible schedules working an average of 15 hours per week. The definition of Full Time Equivalent could be stated at it’s a unit of measurement that represents an employee’s work hours on a weekly full-time basis. It can also be ambiguous when considering employees who don’t work fixed hours every week, such as hourly employees or freelancers contracted on a per-project basis.

In this case, knowing your headcount and comparing it to other metrics (like sales volume) will help you figure out where there may be inefficiencies within your organization and make decisions accordingly. When using FTE alongside other performance metrics, it can become easier to understand per-employee costs and output in a large organization. This is because fte meaning the purpose of an FTE is not to see how many employees you have, but rather to measure the amount of work that’s being done. In other words, it allows you to compare different types of staffing arrangements on a level playing field. FTE has several different uses and several different calculation methods, depending on why you want to calculate it.

Example 2: whole business

As you can see, because the project only took 100 hours, you have one FTE left over. This tells you that, when allocating resources for future projects, you can reduce the number of FTEs by one and still have enough manpower to complete the project. You can calculate the FTEs required for the project by estimating how many hours each task https://www.bookstime.com/articles/certified-bookkeeper will take and then adding them all up. Within this method, the employee is credited with 8 hours for each day they would be required to work at least 1 hour (including PTO). A 100% FTE is the same as a 1.0 FTE — it may point to one person working a full-time schedule or several people fulfilling the duties of one full-time position.

So, 75 is the number of hours needed per day to finish the said 600-hour project. However, it will be up to you to decide how many people you’ll want to employ to carry this out and what type of employment you will offer them. To calculate the number of hours your employee is expected to work based on their FTE, you’ll need to reverse the previously mentioned process of calculating FTE based on the number of hours worked. When classifying FTEs and working hours in your company’s policy, you can follow suit, or define your own FTE measurements. For example, you may want to do this when you want to make an FTE offer to a new employee during a job interview.

The difference between FTE and headcount?

The calculator will tell how many full-time employees that represents and whether or not you are an Applicable Large Employer. As you can see from the example above, you can easily calculate how many full-time equivalent employees you need to hire to successfully complete a project. All you need to do is enter how many hours of work are required to complete the whole project (estimated time), and then how many hours a day your employees will work on that specific project. The expected length of a full-time schedule has changed a lot throughout history — full-time employees now work about 20 or 30 hours per week less than they did in the 19th century. It could require 15 full-time employees (600 hours/40 hours) five days to complete, 30 part-time employees five days to complete, one full-time employee 15 weeks to complete, or a combination of these. Next, add the total hours worked by full-time employees and the total part-time hours worked by part-time employees.

It also helps you in deciding when you need to hire part-timers for short-term projects. 0.5 FTE is the number of hours required for a part-time worker, approximately 20 hours per week. Full-time equivalent employees are people who work the entire workweek—eight hours per day, five days a week, totaling 2,800 hours per year. Several federal programs in the United States—such as the Paycheck Protection Program (PPP)—use FTE to determine employer eligibility.

What is an FTE salary? How to calculate an FTE salary?

However, bear in mind that this only applies to positions that work 30 hours per week when assigned a 0.75 FTE position, i.e., the IRS minimum for a full-time definition. In contrast, non-exempt positions who typically work only 28 hours per week on a 0.75 FTE schedule do not qualify, even if the employer policy defines them as full-time. This is how a company, on average, calculates the average yearly number of hours that a full-time employee works. FTE stands for full-time equivalent and measures how many full-time employees an organization has. The list should include the employee’s name and the number of hours they work per week. Do not include 1099 contractors; they are not considered employees.

Considering that the FTE unit of measure is based on the total number of hours worked — it may not indicate the actual number of people working in a company. Full Time Equivalent (FTE) refers to the unit of measurement equivalent to an individual – worker or student – one unit of a work or school day, applicable in a variety of contexts. In most cases, full time equivalents measure an employee or student and/or their workload.

Additional reading

However, they must consider specific instructions provided by programs as well, if any. The full-time equivalent metric calculates the total number of full-time employees based on the hours worked. This metric does not consider the actual number of employees for that calculation.

• FTE value helps in indicating the number of full-time employees that a company shall employ in a year or the number and type of employees needed to complete a project.
• This calculation provides a convenient way to quantify how many theoretically “whole” full-time employees are on the company payroll, even if the majority of your workforce is actually part time.
• You can work out the Full-Time Equivalent by dividing an employee’s scheduled hours by the employer’s hours for a full-time workweek.
• 100% FTE can also be achieved in several other ways, for example, through two part-time employees (who each work 20 hours per week) or four employees who work 10 hours per week.
• In order to get a more accurate and nuanced understanding of your team’s human capital, however, you should use Full-Time Equivalents (FTE).

Categories: Bookkeeping