Why calculate FTE?
Are you having trouble making budgeting and workforce planning decisions due to the large number of seasonal and part-time workers you have?
If so, you should use the full-time equivalent (FTE) measurement to standardize your workforce on paper.
In other words, instead of counting how many full-time, part-time, and seasonal employees you have, you count your total number of hours worked and then determine how many full-time employees it would take to work those hours.
You combine all your part-time and seasonal employees into ‘full-time equivalents’ to simplify decision-making.
For example, if your organization uses the standard 40-hour workweek, an employee working 40 hours each week would count as an FTE value of 1.0 or one full-time employee.
Conversely, since a part-time employee would work 20 hours a week, they would count as 0.5 FTE or half of one full-time worker.
So, instead of saying that you have one full-time employee and one part-time employee, you would say that you have 1.5 full-time employees.
Standardizing your headcount in this manner is extremely useful for:
- Planning labor costs
- Workforce forecasting
- Benefits enrollment
- Compliance with labor laws, such as qualifying for a Small Business Healthcare Tax Credit through the Affordable Care Act (more on this later)
It’s important to know that the FTE calculation benefits various Human Resources tasks and decisions, such as resource allocation and workforce planning.
In this article, I’ll teach you how to calculate FTE and provide a list of real-world uses and benefits, so stick around to learn more.
What is the full-time equivalent?
At your organization, 1 FTE equals the number of hours a typical full-time employee works within one week.
So, if you use the standard 40-hour workweek, 40 hours equals 1 FTE.
However, if you use a 30-hour workweek, 30 hours would equal 1 FTE, and so on.
It’s important to understand that FTE has no unanimous standard as a unit of measurement. Instead, each organization sets its value based on the number of hours it expects full-time employees to work.
The Fair Labor Standards Act (FLSA) does not formally define what constitutes full-time or part-time employment. Instead, it leaves this up to the employer.
The FLSA does establish unanimous criteria for overtime. The law states that employees who work over 40 weekly hours must receive overtime pay (one and one-half times their regular pay rate).
This fact explains why FTE is a valuable metric for employers. They can use it to determine whether hiring new part-time workers would be more cost-effective than having full-time employees work overtime.
As stated in the intro, the goal of FTE is to standardize your headcount so that you can measure hours worked instead of analyzing your total number of employees.
A common misconception is that FTE only applies to full-time employees. This is untrue, as the FTE calculation incorporates all your employees, including part-time and seasonal workers.
That’s actually the point, as measuring everything in full-time hours makes calculating part-time salaries, forecasting future profits, and recruiting much more manageable.
How to calculate full-time equivalent
Let’s learn how to calculate your total number of full-time equivalent employees for an annual headcount.
It’s a 6-step process that counts all the weekly hours for employees paid with W-2s, as you don’t want to include 1099 contractors.
Step #1: Compile all your full-time, part-time, and seasonal employees’ weekly hours
First, you must count all the weekly hours your W-2 employees worked during the year. This can be a daunting task if you’re using manual timekeeping methods like punch cards.
It’s made far easier with HRIS (Human Resources Information System) software, as you’ll have a central location to view all your employee’s hours.
Listing every employee on a separate line is essential, as you don’t want to combine the hours. To keep things organized, create columns for the number of full-time, part-time, and seasonal employees.
This list will make the rest of the steps much more manageable, so outline it carefully.
Step #2: Determine what your organization considers to be a full-time schedule
Next, you have to officially define full-time hours at your organization. As stated, the FLSA leaves this declaration up to employers, so no federal law dictates what is and isn’t full-time employment.
Most organizations consider full-time the maximum number of hours they assign to employees, which is most commonly (but not always) 40 hours per week.
Therefore, any employee working fewer hours than what you define as full-time will be a part-time employee.
If you define full-time as 40 hours per week, an employee working 39 weekly hours would still be considered part-time.
It’s crucial not to forget that employees who work over 40 hours per week must be paid overtime (as the FLSA dictates). Organizations typically don’t exceed 40-hour workweeks due to the steep increase in labor costs.
However, many companies have recently experimented with 4-day workweeks, where employees work only 32 hours weekly. For these organizations, 32 hours would be considered full-time and equal to 1 FTE.
Step #3: Calculate each employee’s annual working hours
This step is where it pays off to have built an organized spreadsheet containing each employee’s name back in step.
You must determine the annual working hours for every employee at your organization, including part-time and seasonal workers.
Since there are 52 weeks a year, you must multiply each employee’s annual hours by 52. Once that’s done, you can proceed to the next step.
Step #4: Calculate the annual hours for each type of employee
Now, you must combine the annual hours for each employee type. In other words, you add all your full-time, part-time, and seasonal employees’ hours together.
Don’t add everything together; you’ll want unique values for your full-time, part-time, and seasonal employees.
Step #5: Determine your part-time FTE
The next step is to calculate your part-time FTE, which entails dividing all your part-time workers’ annual hours by just one of your full-time workers’ yearly hours.
Step #6: Calculate your overall FTE
The final step is to add your full-time FTEs (all employees who work full-time schedules) to your part-time FTE.
The resulting figure will be your overall FTE, the metric you should use for forecasting, planning, and decision-making.
An example of calculating FTE
Now, let’s examine an example scenario in which we calculate the FTE for a fictional organization. This should help you understand how the six steps apply to actual numbers.
Compiling the weekly hours
The first step is to create a list of employees who receive a W-2 and include their weekly working hours.
For this example, our fictional company will only employ four employees to keep things nice and simple. The company employs:
- Sam, Rebecca, and Terry. Three full-time workers who each work 40 hours per week.
- Jess. One part-time employee who works 30 hours per week.
- Steve. Another part-time employee who works 20 hours per week.
- Brock. A final part-time employee who works 10 hours per week.
Defining what constitutes full-time work
From the list of our employees, 40 hours per week is the maximum number of hours we assign to staff, so anything below 40 hours is considered part-time.
Calculating annual hours for each employee
Next, we must multiply employees’ working hours by 52 to determine their annual hours.
This means that:
- Sam, Rebecca, and Terry all work 2,080 hours per year. (40 x 52)
- Jess works 1,560 hours each year. (30 x 52)
- Steve works 1,040 hours per year. (20 x 52)
- Brock works 520 hours per year. (10 x 52)
Combining annual hours for each employee type
The next step is to add the annual hours for each type of employee, meaning we add all the full-time and part-time working hours (while keeping the numbers separate).
Sam, Rebecca, and Terry comprise our full-time staff, working 2,080 hours yearly. Adding those together (2,080 + 2,080 + 2,080) gives us 6,240 full-time hours.
Jess, Steve, and Brock are all part-time workers, so we add all their hours together. Doing so ( 1,560 + 1,040 + 520) equals 3,120 part-time hours.
Calculating the part-time FTE
Before calculating the overall FTE, we have to calculate the part-time FTE first. To do so, we divide the total part-time hours (3,120) by the number of full-time hours for just one employee (crucial step), which is 2,080.
3,120 divided by 2080 gives us a part-time FTE of 1.5.
Calculating the overall FTE
Lastly, we need to add the full-time FTE to the part-time FTE, which we’ve already established is 1.5.
But what is the full-time FTE?
Calculating this is much easier since your full-time employees always equal 1 FTE.
Since our fictional organization has three full-time employees (Sam, Rebecca, and Terry), our full-time FTE is 3.
So, to get the overall FTE, we add 3 + 1.5, which gives us a total FTE of 4.5.
What are the benefits of calculating your FTE?
Now that you know how to calculate your FTE, why should you bother?
After all, a lot of math is involved, and calculating the FTE for a large organization is far more complex than doing it for four employees.
That’s true, but the benefits outweigh the effort involved.
Moreover, plenty of tools help speed up the process, such as FTE calculators like this one.
Even if you have thousands of employees, these tools make calculating your FTE as simple as entering a few figures and clicking a button.
Also, calculating your FTE will provide the following benefits.
Accurate workforce planning
A large mix of full-time and part-time workers can make assessing your workforce across departments or the entire organization challenging.
Standardizing everything with FTEs will make managing budgets, forecasting staffing needs, and allocating key resources easier.
This is because FTE provides clear and concise numbers for your staff’s full-time or part-time hours.
FTE will also help you determine whether it’s worth hiring part-time employees to avoid forcing your full-time workers into overtime.
Compliance with labor laws
As mentioned before, FTE calculations play a significant role in qualifying for tax credits through the Affordable Care Act.
Important note: While the FLSA does not formally define full-time working hours, the Affordable Care Act does. Under the ACA, 30 hours per week constitutes 1 FTE. So, if your organization normally counts 40 hours as full-time (or any figure other than 30), you must recalculate your FTE for ACA compliance.
Also, the ACA requires employers with 50 more FTEs (the 30-hour FTEs) to provide healthcare benefits in line with ACA standards.
Better performance measurement
FTE calculations also enhance performance measurement across all departments. Regardless of employment type, standardizing your workforce with FTEs allows you to compare productivity between part-time and full-time workers.
In doing so, you may discover that some of your part-time workers outperform your full-time ones.
Insights like this are why calculating FTE is so helpful.
Enhanced budgeting
Financial planning also benefits from FTE calculations. This not only includes budgeting but also encompasses compensation.
For example, FTE is great for determining fair salaries for part-time employees.
Suppose you pay your full-time engineers 40 hours per week (FTE value of 1.0) an annual salary of $200,000.
Therefore, a part-time worker who works 20 hours per week (FTE value of 0.5) should make $100,000 (half).
A worker who puts in 30 hours per week (FTE value of 0.75) should earn $175,000.
While these figures are clear-cut and easy to figure out without FTE, the metric is handy for more complex calculations with salaries that aren’t even.
Final thoughts: Full-Time Equivalent
We’ve covered a lot at this point, so let’s briefly recap:
- Full-time equivalent is a metric standardizing your employee’s headcount. It translates all part-time and seasonal workers into full-time hours.
- The FLSA does not define full-time or part-time work and leaves it up to the employer.
- FTE is useful for complying with labor laws, workforce planning, budgeting, and compensation.
- There are six steps involved in calculating your overall FTE.
- The ACA considers 30 hours per week full-time, so you must consider that when complying with the law (i.e., if you have 50 30-hour FTEs, you must provide health benefits).
More resources:
Digital age workplace: Why soft skills matter more than ever 
Talent shortage: Addressing the growing gap in the workplace
Employee skill gaps: What they are and how to address them
