Originally Posted On: How to calculate FTE: What is full-time equivalent? | QuickBooks (intuit.com)
An FTE or full-time equivalent calculation helps organizations better understand operational logistics as it relates to their employees and their employees’ contributions. If you’re a business owner or work in human resources (HR), an FTE calculation can provide valuable insights into your team’s costs, provide an understanding of the value of part-time employees, help you balance your workers’ workloads, and ensure that you’re complying with Affordable Care Act (ACA) regulations.
Below, we’ll look more closely at FTE, the equation for an FTE calculation, and why it’s an integral metric for understanding your company’s organizational needs. Keep reading for a comprehensive explanation on how to set yourself up for success with FTE calculations, or use the links below to jump to a section you’d like to learn more about.
What does FTE stand for? FTE is shorthand for full-time equivalent. An FTE calculation is a method for measuring how many full-time employees are present at a company, alongside the number of part-time employees that in aggregate can be translated into full-time terms.
But what does FTE mean for your company? Well, employers calculate FTE for several reasons but one of the most important reasons is that the calculation can help your organization run more efficiently through the standardization of hours and pay.
Like we mentioned above, employers use FTE calculations for a number of different reasons to better understand the employment needs and labor output of their organization. Let’s dive into the main benefits of using an FTE calculation below.
When your organization relies on part-time employees, an FTE calculation helps you better understand their contributions to the team. It also helps you better comprehend certain metrics based on your part-time employees, like the profits part-timers help generate for your company.
FTE calculations can provide insight into workloads across your company. Let’s look at a quick example: If an employee is hired to work 60-hour workweeks, and they work 90-hour weeks instead, their FTE would be 1.5. In this instance, you could easily see this particular team member is experiencing too high of a workload.
FTE calculations can also help you forecast your labor needs in the future. This is particularly helpful if each year you’re hiring seasonal employees. Sometimes, this is called “head count analysis.”
Workload balance is another important aspect of business efficiency. That’s where FTE comes in because you can use the FTE calculation to assign a certain number of employees to departments within an organization, depending on each respective department’s work needs.
Both company leaders and HR can evaluate job descriptions, projects, or virtually any other work need and determine the FTE number necessary to successfully complete a particular job.
Employees who have more than 50 full-time employees or FTE workers, known as applicable large employers (ALE), must be in compliance with rules laid out by the ACA. These regulations include shared responsibility provisions and tax reporting requirements like issuing Form 1095-C when necessary.
FTE calculations can also help track salaries and labor costs within the organization. For example, HR departments can use FTE calculations to standardize the working hours and salaries of employees working on a part-time basis. So, workers who work 20 hours in a standard 40-hour workweek are 0.5 FTE because they’re working half the time of full-time workers. So, they’ll receive 0.5 of a full-time worker’s salary.
Tip: You can also use QuickBooks paycheck calculator to get a better idea of your specific labor costs.
Full-time employees usually work more than 30 hours a week or more than 4 days a week. They’re also generally employed on a permanent basis as opposed to seasonal or temporary. Full-time workers are also typically entitled to benefits like medical or vacation pay.
An FTE employee is the aggregate of your part-time employees. So, each of your part-timers count as a fraction of a full-time employee. When you add your part-timers together, you create an FTE employee.
Calculating FTE for your employees is relatively simple.
The calculation of FTE is an employee’s hours divided by the employer’s number of hours considered a full-time workweek.
Hours paid in given pay period / working hours in that period = FTE
If an employer has a 40-hour workweek, a worker scheduled for 40 hours per week is 1.0 FTE.
The FTE calculation would look like this:
40 hours paid in pay period / 40 working hours = 1.0 FTE
If an employee is set to 20 hours per a 40-hour workweek, then they’re considered 0.5 FTE.
The FTE calculation would be as follows:
20 hours paid in pay period / 40 working hours = 0.5 FTE
We’ve put together a few commonly asked questions below to address remaining questions you may have about FTE.
FTE 100% or 100% FTE is 1.0 FTE. This calculation of 1.0 FTE can mean one employee is working a full-time workweek or, it can mean that there are several employees completing the tasks of one full-time position.
The SBA defines FTE employees as workers who work 30 hours a week or more. FTE also includes the sum of employees who work less than 30 hours a week, where the aggregate of work hours of those employees is equal to at least a 40-hour workweek.
Proof of FTE is evidence required for Paycheck Provider Program (PPP) Loan Forgiveness. What is the PPP? The PPP is part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. Under the PPP program, businesses can apply for funding to keep employees on payroll and cover certain operational costs. Businesses that want to apply for PPP loan forgiveness can submit eligible operational costs and proof of FTE.
Note: As of May 4 2020, the PPP is out of general funds, and the SBA stopped accepting PPP loan applications. With that said, there are specific funds set aside for financial institutions to lend to women-owned businesses, minority-owned businesses, and underserved communities. In addition, funds are also set aside for applications sent in but not yet reviewed by the SBA. Remember, submitting a PPP loan application doesn’t guarantee you will get funding.
No, owners are excluded from the FTE calculation for PPP.
FTE is an important calculation for businesses that need to keep track of organizational costs, efficiency, overtime hours, work output, and the overall strain on certain departments. If you’re not sure where to start to track FTE, consider using QuickBooks Time, which helps organize employee hours and delivers helpful insights into your FTE calculation. With these tips, you can run a smoother business operation with a deeper level of understanding into your labor costs and needs now and in the future.
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