When you’re thinking about offering health insurance, you’ll see three letters flung around constantly: FTE. The acronym is shorthand for full-time equivalent, and it’s a way to measure how many full-time employees you have, along with your part-time employees that are then translated into full-time terms. It can be a smidge confusing at first, so we’re here to help you make sense of it all. In this post, we’ll show you exactly how to calculate the number of full-time equivalents you have on board.
What is an FTE?
An FTE is a yardstick that measures the amount of full-time hours being completed at your company. The number is tallied using your part-time and full-time employee count, in addition to a few simple calculations.
To reach your FTE count, you’ll have to translate the hours worked by your part-timers to what they would look like on a full-time basis. After that, your full-time employees are folded into the final count.
Is your team fully full-time? Then your FTE total is simply the number of employees you have on staff. If you also have part-timers sprinkled in, then you’ll have to first convert their hours to full-time, and then add in your true full-timers.
Why does it matter?
Your FTE number determines whether you’re seen as an applicable large employer, or ALE. An ALE is not just a delicious beverage — it means that last year you had 50 or more employees, or a blend of full- and part-time workers that equaled 50 FTEs. Flip through your records to see what your team looked like a year ago.
If your company fits the ALE bill, it means you’re required to offer group health insurance under the Affordable Care Act’s employer mandate. Having ALE status also means that you need to send in your 1094-C and 1095-C forms describing the kind of coverage you provided to your team.
Don’t shed a tear if you’re not an ALE — you can still give your team health insurance. In fact, 65 percent of small businesses that provide company-sponsored coverage have between five and 49 employees on staff.
How do I calculate my FTE number?
It’s easy. Grab a pencil, open your notebook, and we’ll go through a quick math problem together.
- How many part-time workers do you have? According to the IRS, part-timers are those who work less than 130 hours a month, or 30 hours a week.
- Write down the average number of hours each part-time employee works per week. Now, add them all together.
- Take the result and divide it by 30.
- Round down to the nearest whole number.
- Add your full-time employee count to the number you got above.
- That’s it!
Here’s a quick formula that summarizes the exercise above:
(Total average of part-time hours worked per week / 30) + # of full-time employees = Your FTE number
FTEs in the wild
Now, let’s look at a few examples. You’re a cinema buff who owns a chain of movie theaters. To keep the show running, you employ a staff of 40 full-time employees and 20 part-timers. Each of your part-time employees works ten hours a week selling tickets and snacks, while your full-timers cram in an average of 30 hours a week on marketing, business development, and other showbiz-related tasks.
To get to your FTE number, you first have to figure out the total weekly hours worked by your part-time employees [10 x 20 = 200]. Then, you divide 200 by 30, which leaves you with 6.6. Now, round down. Add your full-time employee count to that number, and you get to an FTE number of 46. Therefore, you are not an ALE.
Great, but what if you’re in business for just a few months out of the year? Perhaps you also own a Halloween costume store that’s only open in September and October. During those two spooky months, you hire 60 seasonal workers. Since they work 120 days or less in a single year, you’re not considered an ALE here either.
Zeroing in on your full-time equivalent number is an important step to master when running your company. And once your knowledge is in full swing, you’ll feel good knowing that you’re keeping your team nice and (fully) compliant.