Buzz
FTE, which stands for Full-time Equivalent, refers to the total hours a full-time employee works within a specific timeframe, such as a month or a year. This metric is used to convert working hours into the number of employees required to complete a task, simplifying planning processes. FTE also aids budget analysts and project managers in estimating labor costs. Additionally, it helps managers determine whether overtime expenses justify hiring new full-time or part-time employees.
Steps
Calculate FTE
Determine part-time employee working hours. Use accounting records to identify the hours worked by part-time employees. This applies to companies employing both full-time and part-time staff.
- Multiply the total weekly working hours by the number of weeks each part-time employee works. Example:
- A part-time employee works 15 hours per week for 30 weeks: 1 x 15 x 30 = 450 hours
- Two part-time employees work 20 hours per week for 40 weeks: 2 x 20 x 40 = 1600 hours
- Add the results to get the total part-time working hours.
- Example: 450 + 1600 = 2,050 part-time working hours
Calculate full-time employee working hours per period. Full-time employees are those who work a maximum of 40 hours (minimum 30 hours) per week for more than 120 days each year.
- Multiply the number of workers by 40 (8 hours per day x 5 days per week).
- Example: 6 full-time employees: 6 x 40 = 240 hours
- Multiply this result by 52 (number of weeks in a year).
- Example: 240 x 52 = 12,480 full-time working hours
Add full-time and part-time working hours together. The result is the total working hours of all employees.
- Example: 12,480 (full-time hours) + 1,600 (part-time hours) = 14,080 total working hours
Divide total working hours by full-time hours. This calculation determines the company's FTE for a specific period.
- Holidays and other paid leave (sick leave, maternity leave, etc.) are already included in working hours. Therefore, no additional calculations are needed for these hours.
- Divide total hours by 2,080. 2,080 is a fixed number derived from the equation: 8 hours per day x 5 days per week x 52 weeks per year. This final step calculates your annual FTE.
- Example: 14,080 (total hours) ÷ 2,080 = 6.769 FTEs
- Divide total working hours by 173.33 to calculate monthly FTE.
- Example: 4,000 (hours worked in February) ÷ 173.33 = 23.07 FTEs
- Divide total working hours by 8 to calculate daily FTE.
- Example: 80 daily working hours ÷ 8 = 10 FTEs
Use an online FTE calculator
Find an online FTE calculator. With an online tool, you only need to input the number of full-time employees and the weekly working hours of part-time employees. The online calculator will then compute and provide an estimated FTE value. Reliable FTE calculators can be found at https://www.healthcare.gov/shop-calculators-fte/ and http://www.healthlawguideforbusiness.org/fte-calculator.
Gather employee data. You need both the total number of full-time employees and the working hours of part-time employees. This information is typically listed and stored in accounting records. Note: Full-time employees are those who work more than 30 hours per week.
Input the data. Enter the employee data into the relevant fields on the calculation tool. Ensure the hours entered are calculated weekly, monthly, or annually, and adjust the data accordingly. Double-check your information before clicking the "calculate" button to avoid errors.
FTE calculations are estimates. Remember that the result from the FTE calculator is only an estimate. You can use this figure for preliminary FTE estimation for guidance or educational purposes. However, these calculations should never replace legal or tax advice from professionals in the field. For 100% accurate business calculations, alternative methods are required.
Use professional FTE calculation methods
Hire a tax expert to calculate FTE for your company. Calculating FTE is crucial, so accuracy is essential. Errors in calculations can negatively impact various aspects of your business, including profit forecasting, taxes, and other areas. If you lack confidence in accurately calculating FTE, hire an experienced accountant to assist you.
- When hiring an accountant, provide all critical business information to ensure they have the necessary data for FTE calculations.
- The accountant will also need access to employee records, previous tax documents, and similar materials.
Seek assistance from legal experts. Some attorneys experienced in this field can help you calculate to ensure accurate results. You should seek advice from tax attorneys to assist with FTE calculations.
Use FTE to calculate business metrics. FTE analysis can be a valuable tool for assessing the number of employees needed for a part or the entirety of a business. Business owners can also track overall employee growth trends over the years more clearly by analyzing FTE changes. You can also compare FTE with other metrics to evaluate how additional employees contribute to the business's profit or revenue.
- If your business employs part-time workers, you should convert their working hours into full-time equivalent hours.
- You can also use FTE to compare population with income or square footage, which is useful for budgeting and hiring/firing decisions.
Calculate FTE for health insurance. Another application of FTE is determining the size of a small business for health insurance purposes. Specifically, the Small Business Health Options Program (SHOP) requires businesses to have fewer than 50 FTEs to qualify. This program offers affordable and high-quality employee insurance policies for business owners. However, besides FTE, businesses must also meet other criteria to be eligible.
Use FTE to calculate student enrollment. FTE is also used as "full-time equivalent enrollment" for universities and similar educational institutions to enroll full-time and part-time students. Instead of working hours, credit hours are used, with full-time students being those with sufficient credits (typically 12 hours per week) and part-time students being those with fewer than 12 hours per week. However, different institutions may have varying credit hour requirements for FTE calculations.
Tips
- FTE does not indicate the number of employees. The value of one FTE remains constant over time unless the company modifies its standard staffing model.
