Many organizations across various industries, including education, hospitality, and healthcare, employ a mix of worker types — full-time, part-time, and contract. And while different types of workers help fulfill workforce needs, it makes labor forecasting and compliance with tax and labor laws a challenge.
To simplify matters, employers use a measurement called full-time equivalent (FTE).
Introduction to Full-Time Equivalent (FTE)
Full-time equivalent is a unit of measurement that represents the total hours worked by employees by using a standard definition of a full-time employee. For example, you could call one full-time employee an FTE or calculate two part-time employees as one FTE.
In the U.S., most companies define full-time as working 40 hours a week. However, it’s important to consider federal and state laws for FTE. For example, the Affordable Care Act counts employees who work 30 hours on average each week as full-time equivalent.
How to Calculate Full-Time Equivalent
A simple calculation for FTE is: Total Hours Worked / Standard Full-Time Hours. If your company considers 40 hours full time, then the breakdown looks like:
- One employee working 40 hours per week = 1.0 FTE
- One employee working 20 hours per week = 0.5 FTE
- Two employees each working 30 hours per week = 1.5 FTE
A 120-hour project would take three full-time equivalent employees for one week. This could be three full-time employees, 6 employees working 20 hours a week, or a combination of full-time and part-time employees to make up the three FTE.
Applications of FTE
FTE is widely used across industries to optimize workforce planning, budgeting, and compliance. Some main applications include:
- Staffing: An FTE calculation helps determine staffing levels required to meet operational needs.
- Workforce planning: FTE offers insight into workforce capacity, enabling better decision-making for hiring and project management.
- Compliance: FTE calculations are required for determining whether your organization is considered an applicable large employer (ALE) under the Affordable Care Act. Applicable large employers are required to offer affordable health coverage to full-time employees or make an employer shared responsibility payment to the IRS. Information reporting requirements apply to ALEs as well.
- Grant and funding eligibility: FTE is often used in the education, healthcare, and nonprofit sectors to meet specific funding criteria tied to employee workload.
Check out Paycor’s ACA IRS filing guide.
Benefits of Using FTE in the Workplace
There are many benefits to using FTE in the workplace. For example, FTE can:
- Aid in standardizing employee workload, allowing for a more equitable distribution of tasks and responsibilities across the workforce
- Provide a standardized way to compare productivity and efficiency across teams or departments
- Help in calculating labor costs, allowing for better budgeting and cost control
- Support
swork-life balance initiatives by providing clear metrics on actual workloads versus stated employment status - Simplifies strategic planning by providing a consistent unit of measurement when forecasting growth needs across different departments
Challenges and Limitations of Full-Time Equivalent
Although the full-time equivalent measurement is useful, there are some drawbacks to relying on it.
Qualitative Differences
The standardized nature of FTE calculations often fails to capture the qualitative differences in employee contributions, as it focuses solely on hours worked rather than productivity or output quality. This can be particularly problematic in knowledge-based industries where creative work doesn’t necessarily correlate with time spent.
Regional Differences
Regional and industry differences further complicate FTE applications, as the standard definition of full-time varies. These inconsistencies make cross-border or cross-industry comparisons challenging without additional context or adjustments.
Seasonal Fluctuations
Organizations with seasonal fluctuations face additional difficulties, as annual FTE calculations might not reflect the substantial variations in staffing needs throughout the year. The increasingly common flexible work arrangements—including compressed workweeks and results-only work environments—also strain traditional time-based FTE models.
FTE and Part-Time Employee
Converting part-time hours to a full-time equivalent provides organizations with a standardized way of accounting for their diverse workforce. And the calculation is straightforward:
You divide the part-time employee’s scheduled hours by the standard full-time hours. For example, if your organization defines full-time as 40 hours per week, an employee working 15 hours weekly represents 0.375 FTE.
FTE and Remote Work Example
Remote work often blurs the boundaries between work and personal time, making accurate hour tracking more difficult. Some organizations have responded by implementing digital time-tracking tools or moving toward output-based measurements rather than strictly hours-based calculations. Despite these challenges, most organizations continue to apply standard FTE definitions to remote workers, maintaining consistency in workforce planning metrics.
To account for flexible work arrangements, some organizations supplement traditional full-time equivalent metrics with productivity indicators that better capture the value contributed by employees with flexible arrangements.
How Paycor Helps
Whether you use FTE calculations or not, Paycor makes workforce management easier with its Time + Attendance software. Automated and accurate time tracking allows you to manage time off, track hours worked, and stay on top of labor distribution. AI Insights offers data analysis, time and attendance trends, and patterns for more informed decision-making.
Accurate and reported timekeeping also helps ensure regulatory compliance with local, state, and federal labor laws. Paycor automates compliance tasks with regulatory updates, ACA form filing, payroll tax management, and more.
Take a guided product tour to see our solutions in action.