If you have tried to navigate federal employment laws, especially the Affordable Care Act, you may have come across the term “full-time equivalent employee.” Full-time equivalent (FTE) can be a confusing term. How can an employee who isn’t full time be equal to a full-time employee?
What is an FTE employee?
A full-time equivalent employee is a combination of your part-time employees. Each part-time employee counts as a portion of a full-time employee. When you add together multiple part-time employees, you can create full-time equivalent employees.
When you have employees, there are certain employment laws you must follow. Each employment law has a threshold, which is a minimum number of employees you must have before you follow the law. Sometimes, the threshold is determined by a number of full-time equivalents.
You need to know how many full-time equivalents you have to you know which laws you need to follow. The Affordable Care Act (ACA), COBRA, and allocated tips are just a few of the reasons you need to know how many FTEs you have.
How to calculate full-time equivalent employees
Learning how to calculate FTE employees will vary depending on what you calculate the equivalents for. Some laws have different definitions of full-time equivalents.
In general, you will find the average hours worked by your part-time employees during a certain amount of time. You will divide that number to calculate how many full-time employees your part-time employees make up. Then, add in your full-time employees to get your total full-time equivalent employees.
Calculating FTE example 1
In this example, let’s calculate full-time equivalents to determine if you are subject to Employer Shared Responsibility of the Affordable Care Act. You are subject to Employer Shared Responsibility if you have at least 50 FTEs on average during the previous calendar year. Let’s break down the FTE calculation for ACA.
Affordable Care Act rules say full-time employees work at least 30 hours per week or 130 hours per calendar month. Let’s say you have 40 full-time employees.
Let’s also pretend you have 20 employees who each work about 85 hours per month.
To find out how many full-time equivalent employees you have, total all the hours worked per month by part-time employees.
20 X 85 = 1700 hours
Divide the total hours worked by part-time employees by 120 hours to find how many full-time employees your part-time employees make up.
1700 / 120 = 14.17 employees
Add together your full-time and part-time employees.
40 + 14.17 = 54.17 full-time equivalents
In this example, you have 54.17 full-time equivalents during the month.
To discover if you have an average of 50 full-time equivalents for the year, add together the total full-time equivalents per month. Then divide that number by 12 to get your average full-time equivalents for the year.
Calculating FTE example 2
Let’s focus on COBRA in this example. You must offer COBRA continuation coverage if you offer a group health plan and have 20 or more employees on more than 50 percent of your business days in the previous calendar year.
Let’s say employees must work 40 hours per week to be full time. You have 10 full-time employees and 10 employees who work an average of 25 hours per week.
Add together the hours of the part-time employees for the week.
10 X 25 = 250 hours
Divide that total by the total hours an employee must work to be full time (40 hours).
250 / 40 = 6.25 employees
Your part-time employees make up 6.25 full-time employees. Now, add your full-time employees.
6.25 + 10 = 16.25 full-time equivalent employees
You have 16.25 full-time equivalent employees. You do not have to offer COBRA continuation coverage.
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