The full-time equivalent number, or FTE, is a number employers use to determine how many full-time workers they employ, as well as part-time employees that can turn into full-time terms.
It’s an important number to know, especially when you’re offering health benefits. So how do you determine and calculate your FTE?
Defining FTE employees
The FTE is a unit of measurement that tracks the number of full-time hours being completed at your company. The number comes from totalling your part-time and full-time employee count, plus a few other calculations. To calculate your FTE count, extend the number of hours worked by your part-time employees to what they would look like as full-timers. Next, fold in your full-time employees for an FTE number.
This FTE number reflects the number of employees you have on the payroll. It’s important to total up your part-time employees and convert their hours to what they would be as full-timers to determine if your company is an ALE.
Your FTE number is equal to: (total average of part-time hours worked per week / 30) + the number of full-time employees. Let’s break this down.
Determine how many part-time workers you have. The IRS defines part-time employees as people who work less than 130 hours a month, or 30 hours a week
Record the average number of hours each part-time employee works per week; add them all together
Divide this number by 30
Round down to the nearest whole number
Add full-time employees to the number you calculated
Congratulations! You have your FTE number
ALE, and why your FTE numbers matter
The FTE number determines whether the federal government views your company as an Applicable Large Employer (ALE). To qualify as an ALE, you must have employed 50 or more employees the previous year, or a mix of full- and part-time workers that equal 50 FTEs (which is why you extend the number of hours worked even for your part-time employees).
If your company is an ALE, you’re required by theAffordable Care Act to offer group health insurance. As an ALE you also have to send in1094-C and 1095-C forms proving and describing the health coverage you offered to your employees.
FTE calculation examples
Let’s say you own a hardware store. You employ 20 full-time and 10 part-time employees. Your part-time employees assist with customers, run the cashiers, and stock shelves for 10 hours a week, while your full-times calculate needed inventory, order tools, paint, and hardware, and average 30 hours a week.
The FTE number is determined by the total weekly hours worked by part-time employees: 10 x 10 = 100
Divide 100 by 30, which gives you 3.33. Round down to 3. We’ll add our full-time employees to our number, (20 + 3) and our FTE is 23. Therefore, you are not an ALE.
Being able to consistently and accurately determine your FTE is a critical step to master when running your company. Once you’ve got your calculation dialed in, you’re one step closer to conquering the world of compliance.