What does full-time equivalent mean?

Full-time equivalent (FTE) measures how many full-time employees or part-time employees add up to full-time employees. FTE helps employers understand workforce needs when hiring employees and provides insight into tax credits.

To understand their needs, a business will need to calculate FTE. For instance, if a business considers 45 hours per week as full-time, an employee working 45 hours per week would have an FTE of 1.0. A part time employee working 22.5 hours a week would have an FTE of 0.5.

What are the benefits of calculating FTE?

Calculating FTE can offer businesses:

• Clarity over budgeting: Managers and executives can use FTE to estimate labor costs and timelines for a specific project or specific task. Finance teams can use this information to create financial forecasts and calculate revenue or profits per employee.
• Knowing how many employees are needed: FTEs can help organizations understand how many full and part-time workers they need and the hours they should work. This is especially helpful during budget changes.
• Stronger hiring decisions: A full-time equivalent helps businesses understand if it’s more financially beneficial to hire a part-time worker vs. a full-time employee.

How can employers calculate the full time equivalent?

Employers can calculate FTE themselves. Here are the steps:

1. Calculate how many hours a full-time employee works per year (not including holidays or absences). If an employee works 45 hours per week and 9 hours a day for 52 weeks per year, the employee would work 2,340 hours per year and have an FTE score of 1.0. Put this figure aside until the last step.
2. Next, determine the number of hours worked by part-time employees. If four part-time employees work 20 hours a week for 30 weeks and two part-time employees work 15 hours a week for 20 weeks it would look like this:4 x 20 x 30 = 2,400 hours
   2 x 15 x 20 = 600 hours
   To get the total number of hours worked by all part-time workers, add the two results together:
   2400 + 600 = 3,000 total hours part-time

3. Calculate the number of hours worked by full-time employees over a certain period. Full-time employees work a minimum of 30 hours per week and a maximum of 45 hours a week, no more than 120 days a year. If seven full-time employees work 45 hours a week:
   7 x 45 x 52 (weeks per year) = 16,380 hours full time 
4. Add the total number of hours full-time employees worked to those of part-time employees to get the total number of hours for all employees:
   From the above calculations: 3,000 (part time) + 16,380 (full-time) = 19,380 total hours. 
5. Lastly, divide the total number of hours of full-time employees and part-time employees by the number of regular full-time hours to calculate the FTE for a certain time period:
   9380 (full and part-time hours) / regular full-time hours (2340) = 4.0 (FTE)
   The FTE is 4.0. With 13 employees, 6 part-time and 7 full-time, the staffing capacity is 4.0 full-time employees per year.