As a business owner, there are many important numbers and metrics you need to track in order to have a clear understanding of your company’s performance.
Some of these metrics, such as full-time equivalents (FTEs) are also important when it comes to remaining compliant with certain laws.
Are you currently applying for the Paycheck Protection Program (PPP) Loan Forgiveness? If so, you will also need to calculate your FTEs; however, they have certain requirements when it comes to calculating your FTE number, which we’ll explain a bit later.
What Exactly is a Full-time Equivalent?
A full-time equivalent measures the number of full-time hours being completed at your company. This is how you will measure how many full-time employees you have and how many part-time employees that can be translated into full-time terms.
An FTE is calculated by dividing an employee’s scheduled hours by the employer’s hours for a full-time workweek. If your company’s full-time workweek is 40 hours, an employee scheduled to work 40 hours per week would be 1.0 FTE. An employee scheduled to work 20 hours per week would be 0.5 FTE.
And that’s just a toe-dip in the FTE number pool! But stick with us as we explain why this matters to your business, walk you through it step by step, and provide an easy equation to make calculating your FTE number a breeze.
Why Is This Important for Employers?
Employers may need to calculate FTEs for a few different reasons. Some use them to track revenues or profits per employee, since the calculation converts hours worked by part-time employees into full-time equivalents.
Many businesses also need to determine FTEs in order to remain compliant with laws such as The Patient Protection and Affordable Care Act. Your FTE number determines whether you’re seen as an applicable large employer (ALE).
If you’re an ALE, it means you have 50 or more employees OR a combination of full- and part-time workers that equaled 50 FTEs. And if you fall under the ALE category, the Affordable Care Act requires that you offer group health insurance. You would also need to submit 1094-C and 1095-C forms describing the coverage you provided to your employees.
How to Calculate Your Company’s Full-time Equivalents
Now that you know what a full-time equivalent is and why it’s important, let’s break down the steps to calculate it.
- Note how many part-time employees you have. (The IRS defines part-timers as 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, then add them up.
- Divide that number by 30.
- Round down to the nearest whole number.
- Add that number to the number of full-time employees.
It’s as simple as that—five simple steps to getting your FTE number. Basically, your calculation looks like this:
(Total average of part-time hours worked per week / 30) + X full-time employees = FTE number
Calculating Your Average FTE for the Paycheck Protection Program
As we noted earlier, if you are applying for the PPP Loan Forgiveness, you will need to calculate your FTE by the program’s standards. This states that you will need to calculate your FTE during the Covered Period or the Alternative Payroll Covered Period.
- For each employee, note the average number of hours paid per week.
- Divide that number by 40.
- Round the total to the nearest tenth.
Under this program, each employee is capped at a maximum of 1.0. Keep it simple by assigning a 1.0 for full-time employees (i.e., those who work 40 hours or more per week) and 0.5 for those who work under 40 hours.
You will be eligible for loan forgiveness for certain expenses during the Covered Period or Alternative Payroll Covered Period. The government will use this average FTE to determine whether your loan forgiveness amount must be reduced based on reductions in full-time equivalent employees.
Basically, the amount of your loan forgiveness may be less if you reduced the number of employees or the average paid hours of your employees between January 1, 2020 and the end of the Covered Period. You could be exempt from this reduction, however, if you fall under the FTE Reduction Safe Harbor. These requirements are covered in more detail on the PPP application.
A Look at FTEs in Action
Since every business is different, let’s take a look at a couple of examples and types of FTEs.
Your business might have a 35-hour workweek, so you would divide the employee’s scheduled hours by 35 to determine the FTE. If you have an employee who works 21 hours per week, they would be 0.6 FTE.
If you do have a 40-hour workweek and have four part-time employees who work 10 hours per week, each employee would come to 0.25 FTE which totals 1.0 FTE.
Perhaps you have a staff of 40 full-time employees who average 30 hours a week and 20 part-timers who work 10 hours a week. Your calculation would look like this:
- Total weekly hours worked by part-time employees: 10 x 20 = 200
- Part-time hours divided by full-time workweek: 200 / 30 = 6.6 (Round down to 6)
- Full-time employees + part-time FTE: 40 + 6 = 46
Are you in a seasonal business? Even if you hire 50+ workers, if they work 120 days or less in a year, you are not an ALE.
If you have questions about your full-time equivalent calculations and/or completing your PPP Loan Forgiveness application, BlueLion is here to help! Contact us at 603-818-4131 or [email protected] for more information and we’ll ensure you stay compliant based on your FTEs.