When a company hires a significant portion of its workforce on a part-time basis FTE becomes significant. It’s beneficial to convert the employees’ working hours into FTE to determine the total full-time employees in an organization. Various metrics such as headcount, sales, and profits, evaluate the FTE measure.
It allows you to compare the headcount levels of businesses within any industry. In this article, we’ll take you through why a full-time equivalent figure is important for businesses in the United States.
What’s Considered Full-Time?
Full-time equivalent (FTE) allows employers to measure the number of full-time employees they need. FTE calculations are done based on the employees’ work hours per week.
Technically, a full-time employee can be the equivalent of two part-time workers. Employers treat part-time employees as a percentage of full-time employees. Thus, it is possible to consider full-time equivalent employees by combining multiple part-time employees.
An employer has to follow various employment laws, but not all of them apply to every company. The number of personnel on hand usually determines the laws that apply in particular enterprises. The measure of FTE determines the number of employees (also known as a threshold) of an enterprise. It is calculated to:
- Comply with the employment laws
- Benchmark revenues
- Check qualifications for business loans
Who Qualifies as a Full-time Equivalent Employee?
An FTE employee is evaluated based on the total number of hours the employees have worked in the organization, although the FTE calculation may not consider all the employees hired by the organization. Here are some general criteria for the employees to be considered as full-time:
- An employee who works in a full-time work schedule as per your organization’s standards is a full-time employee.
- Two employees hired part-time who work half of your company’s daily work schedule are equal to a single full-time employee.
- Four employees hired part-time for a quarter of the work schedule are also equal to a single full-time employee.
The Current Full-Time Equivalent Schedule
The length of the average full-time work schedule has drastically changed over the recent years. Due to changes in legislation around the world, employees that companies hire full-time nowadays work 20-30 hours less per week than employees from the previous century. Many companies have even chosen the 32-hour workweek schedule.
Is 32 hours considered full-time? The answer is both yes and no, as these figures differ in various countries.
In the Netherlands, the average full-time work schedule of the employees is approximately 29 hours and 18 minutes per week. Whereas in Colombia, the average full-time work schedule per week is nearly 48 hours.
According to the IRS, a US employee has to work 30 hours every week or 130 hours a month to qualify as a full-time employee. In reality, the employees usually have 32-40 hours workweeks. In many organizations, the most typical work schedule is 40 full-time hours per week. Generally, employees work 8-hour shifts for five days every week.
How Many Hours a Year is Full-Time?
Identifying the total number of hours employees work in a year can help you in determining their hourly compensation. While the procedure for determining hourly wages is simple, the actual result may vary depending on the workweek pattern used in the organization.
Is it a 40-hour or a 32-hour workweek schedule?
How many leaves does the company provide?
Once you’ve determined the weekly working hours and the overall number of holidays granted to employees, the rest is simple. Simply multiply the number of weeks in a year by the number of work hours in a week. For example, if you have a 32-hour workweek, multiply it by 52 weeks. That equates to 1,768 hours a year for each full-time employee.
However, not every company has a 32-hour workweek. The 40-hour workweek is the most prevalent work schedule. In this schedule, each full-time employee works 2,080 hours each year.
Why is Full-Time Equivalent Important?
The FTE determines if a business qualifies as ALE (Applicable Large Employer).
ALE is a designation that indicates that an employer has 50 or more full-time employees. It can also indicate a combination of full and part-time employees that equate to 50 full-time employees in the preceding calendar year.
If your company meets the requirements for ALE certification, the Affordable Care Act’s employer mandate requires you to provide group health insurance to your employees. If you are in ALE status, you must also submit your 1094-C and 1095-C tax forms that describe the type of coverage you provide to your team. Make sure to submit these documents alongside your application.
How to Calculate Full-Time Equivalent?
When an employee works a typical full-time workweek, the equivalent of all employees who work full-time is calculated by dividing the scheduled hours of the employee by the total number of hours worked. Employers often use a 40-hour workweek to calculate full-time equivalents. Employees who work 40 hours per week fall in the 1.0 full-time category. Employees who work 20 hours per week qualify as 0.5 full-time equivalents under federal wage and hour laws.
In the case of a 35-hour workweek, an employer would simply divide an employee’s scheduled hours by 35 to arrive at the equivalent rate. For example, when the full-time employees’ workweek is 35 hours, an employee assigned to work 21 hours a week will have an FTE rate of 0.6.
The number of full-time employee equivalents is determined not by the number of employees but by the hours worked. You could have four full-time workers and only one part-time worker. Four 0.25 employees would be equivalent to one full-time employee. For instance, Janice, Ben, John, and Josh could each work ten hours per week for a total of forty hours per week, or one full-time employee can work based on a 40-hour workweek schedule.
Employers can use the FTE calculation for various purposes, including benchmarking earnings or profits per employee comparisons. It is beneficial to convert the hours worked by part-time employees into full-time equivalents when calculating these metrics.
The Patient Protection and Affordable Care Act (PPACA) specifies how an FTE is calculated. It requires employers to calculate the full-time equivalent to determine whether the law applies to their company.
How to Calculate FTE to Determine the Number of Full-Time Employees?
Consider the following scenario. You are attempting to determine the HR requirements for a project that will take 1200 hours and require your team to work 8-hour shifts per day. By dividing 600 by 8, you can determine the number of days your team has to work to complete their tasks. It will also help you identify the required number of employees to complete the task in the specified days.
1200/8 = 150 hours per day
All you need to do is decide the number of people you need to employ and the type of job you will assign them. Here are some of the options:
- Hiring 10 full-time employees gives you an FTE rate of 10.0 and can help you finish the project in 15 days.
- Hiring 7 employees full-time and 1 part-time gives you an FTE rate of 7.5, and you can complete the project in 20 days.
- If there is no time constraint, you can hire 5 people to complete the same project. They can complete the project in 30 days.
- Hiring a team of 15 employees full-time gives you an FTE rate of 15, and you can complete the entire project in merely 10 days.
The allocation is dependant on the time-sensitivity of the project.
Now that you know the aggregate number of hours employees have to work each day, you can pick your days-per-employee ratio for carrying out the projected volume of work. Also, here is an FTE conversion chart to aid in the proper division of human resources.
Calculating Eligibility for the Paycheck Protection Program (PPP)
Small and medium-sized businesses participating in the CARES Act’s Paycheck Protection Program receive assistance from the program to keep their employees on a payroll.
It specifically assists small and medium-sized businesses in covering eligible salary and non-payroll expenses for up to 24 weeks. The Flexibility Act of 2020 was made a law on June 5, 2008; eight weeks before implementing the Paycheck Protection Program.
Once the small and medium-sized businesses complete their PPP requirements, the money they borrowed from the program will be forgiven in the following situations:
- The funds covered payroll costs. 60% of funds spent on monthly pays, hourly earnings, commissions, additions, and other incentives. With non-payroll costs consisting of 40% of the funds spent on rent, interest on loans, or conveniences of the employees.
- The small business owners maintained an FTE level in their organization from February 15, 2020, till December 31, 2020. The company must have maintained optimal equivalent employee levels by retaining current employees. They could also or rehire employees laid off or furlough them between February 15, 2020, and April 26, 2020.
- The business is eligible if salaries and hourly wages were not cut by more than 25%. It is also suitable if the organization could not function at the same level of business activity as before February 15, 2020, due to COVID-19 compliance and regulations.
Does Your Business Need a Full-Time Equivalent?
There are multiple reasons to calculate full-time equivalents using various calculation methods. Planning for project work in an organization by setting deadlines and a budget becomes more accessible using this tool. Having accurate employee equivalents can help HR in a number of ways. It can be useful to calculate paid time off for employees and if the business is eligible for federal programs.