What Is FTE? How to Calculate Full-Time Equivalent

Full-Time Equivalent (FTE) is a tool to use when calculating the costs of a project or forecasting employee hours and salaries. 

FTE is a method of calculation to use when you want to accurately forecast specific needs of your business. It’s common when budgeting or managing personnel resources for projects. Essentially, it relates to the actual hours both full-time and part-time employees work during a regular workweek.

When you calculate FTE, you can find the costs of time, personnel, and money to determine staffing decisions. It’s used by businesses to figure out how many full-time or part-time employees are in a company and for organizing projects. It’s an important element to accounting to determine employee wages, hours of service, and your company’s expenses.

Here’s What We’ll Cover:

What Is FTE?

Why Should You Calculate FTE?

How to Calculate FTE for Individual Projects

How to Calculate FTE Annually 

The Importance of Calculating Your FTE

Key Takeaways

What Is FTE?

Let’s think about it in a simple context. 

FTE refers to calculating the number of hours instead of the number of employees to forecast costs based on a full-time workweek. A full-time employee can be defined by a 40-hour workweek, 8-hours per day, 5 days per week.

For example, an employee who works a full-time, 40-hour week would equal 1.0 FTE. As would four part-time employees who each work 10-hours per week, totaling 40 hours. You can calculate FTE to determine how much a project will cost in terms of time and personnel needs. 

This method of calculation is a common way of creating an accurate forecast. Human Resources departments often use FTE to figure out how to set the working hours and salaries of employees. It’s important to keep in mind that it doesn’t indicate the actual number of employees, but rather the actual hours worked. 

When you are determining FTE, it’s important to know what a full-time workweek means to your company. For some, it’s 40 hours and for others, it might be 37.5. Either way, when you calculate FTE the formula stays the same. 

Why Should You Calculate FTE?

The good news is that calculating FTE is pretty straightforward. Let’s say you have an upcoming project and you need to determine all your costs. You’re able to establish all of your personnel requirements by calculating FTE.

Your FTE number is also an important factor in determining if you’re considered an applicable large employer. An applicable large employer means that you have 50 or more full-time employees or a combination of full- and part-time with a total FTE of 50. 

If you fall under the criteria for an applicable large employer, you’re required to offer health insurance to your employees. Plus, knowing your company’s FTE count will help reduce overall costs by forecasting employee hours and salaries. 

How to Calculate FTE for Individual Projects

Here’s a breakdown of everything you need to know to calculate FTE for individual projects.

First, you need to account for the hours of a full-time weekly schedule and the actual employee hours they would be scheduled to work. If it’s a 40 hour week, each employee that works 40 hours per week is equal to 1.0 FTE.

For part-time employees, you would divide their weekly hours by the 40-hour workweek. So, if John works 20 hours per week, his FTE would equal 0.5. It would work the same for another part-time employee who worked 15 hours per week.

If your project is estimated to need 250 hours of work to complete, take those 250 hours and divide them by 8 hours, a normal full-time workday. You’re left with 31.3 (rounded to the nearest tenth) which is equal to how many full-time employees you would need to fulfill those 250 hours of project time. 

There are different ways to then decide how to break down that final number. Depending on your project needs, you can use only full-time employees or a mix of full-time and part-time to equal that FTE of 31.3. There’s a ton of flexibility that gives you the option to adjust with the scope of your project. 

How to Calculate FTE Annually 

To figure out your FTE annually instead of by individual project, follow these steps:

1. Figure out the hours worked by employees, taking into account sick leave, time off, and seasonal workers
2. Determine the hours considered to be a full-time workweek
3. Multiply the number of weekly hours by the 52 weeks in a year
4. Add all full-time hours together
5. Add all part-time hours together
6. Calculate the total part-time employee FTE by dividing their hours by the hours worked by full-time employees
7. Add the part-time FTE to the full-time FTE to get your total FTE

For example:

1. Your company has 2 full-time employees who work 40 hours per week, and 2 part-time employees who work 20 hours per week
2. 40 hours per week is considered full-time by your company
3. 2 full-time employees x 40 hours per week = 80 hours 
   1. 80 hours x 52 weeks in a year = 4,160 full-time hours
   2. 2 part-time employees x 20 hours per week = 40 hours 
   3. 40 hours x 52 weeks in a year = 2,080 part-time hours
4. Full-time hours total 4,160
5. Part-time hours total 2,080
6. 2,080 / 4,160 = 0.5 part-time FTE
   1. 2 full-time employees = 2.0 FTE
7. 2.0 + 0.5 = 2.5 FTE

The Importance of Calculating Your FTE

By determining your company’s FTE you get a better understanding of how effective and useful your workers are. Part-time workers are usually paid less than full-time employees and may not have access to the same benefits. Those factors can affect your bottom line.

FTE goes even further than solely calculating project or staffing needs. If you employ 50 or more full-time equivalent employees then you are required to offer health benefits and coverage. FTE is also calculated to see whether or not you qualify for any tax credits.

Getting your FTE calculations correct is incredibly important. You should also recognize the difference between FTE and an overall employee headcount. With a headcount, each employee counts as one, regardless of how many hours they work. FTE refers to the number of hours that are considered full-time. 

Key Takeaways

When it comes to running a successful business, you always want to be as efficient as possible and cut costs wherever you can. Calculating your FTE highlights areas for improvement when it comes to project needs or employee hours.

FTE has a bunch of uses and different ways to calculate it depending on your situation. It’s a simple calculation to make and you just need to know your employee details and go from there. Knowing your accurate FTE will help determine responsibilities for employees. 

Learn more about small business finance and accounting on our resource guide.

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