What Is a Full-Time Equivalent (FTE) Employee?

Whether you're tracking eligibility for benefits or determining your company's reporting obligations under the Affordable Care Act (ACA), understanding how to calculate Full-Time Equivalent (FTE) employees is an essential step for any business working toward ACA compliance. Your full-time staff are not the only factor that determines whether you’re considered an Applicable Large Employer (ALE) under the ACA. If you employ part-time or seasonal workers, their hours can still push your total workforce over the 50-employee threshold, triggering ACA-compliant coverage responsibilities.

In this article, we’ll break down what an FTE employee is and how to calculate FTEs accurately.

What Is a Full-Time Equivalent (FTE)?

A Full-Time Equivalent (FTE) is a standardized way to measure your workforce based on hours worked, rather than just headcount. It allows you to combine the hours of certain employees to determine how many "full-time equivalent" employees your business has. This metric is commonly used for workforce planning, budgeting, and compliance reporting, including determining Applicable Large Employer (ALE) status under the ACA.

Under the ACA, one FTE represents the total hours worked by multiple non-full-time employees whose combined hours are equal to those of one full-time employee. For example, if several part-time employees work enough hours together to match the workload of one full-time employee, they collectively count as one FTE.

We’ll break down how to calculate FTEs in detail later in the article. But first, let’s define the types of employees who are counted when calculating FTEs.

What Types of Employees Count Towards Full-Time Equivalent?

Before you can calculate your total number of Full-Time Equivalents (FTEs), it’s important to know which employees count toward that total. The IRS has clear guidelines on who should and shouldn't be included in your FTE calculations for ACA purposes.

Full-Time Employees

A full-time employee is someone who works 30 or more hours per week, or 130 hours or more in a calendar month. These employees always count toward your total headcount for ACA and FTE purposes.

Part-Time Employees

Part-time employees are those who work fewer than 30 hours per week or less than 130 hours per month. While they aren’t considered full-time, their hours still count toward your total FTE calculation. To calculate their contribution, total all part-time employee hours in a month and divide by 120 (we’ll break this down further later in this article).

Seasonal Employees

Seasonal employees typically work only during specific times of the year (e.g., holidays, summer). Their hours are generally included in your ALE determination, just like full-time and part-time employees. However, there's a specific exception:

You may not need to include season employees in your FTE count if both of the following are true:

• Your workforce exceeded 50 full-time employees (including FTEs) for 120 days or fewer during the calendar year, and
• The employees over the 50-employee threshold were primarily seasonal workers.

If your situation meets both criteria, your business may be excluded from ALE status, even if you temporarily exceeded the threshold.

Business Owners and Family Members

The IRS excludes certain business owners and their family members from FTE calculations, especially in sole proprietorships, partnerships, and S corporations. For example, a sole proprietor and their spouse typically aren’t considered employees for ALE purposes.

If you’re unsure who should be counted based on your structure, consult IRS guidance or a qualified tax advisor.

Independent Contractors and 1099 Workers

Independent contractors are self-employed individuals who receive a 1099 form for tax purposes and are not considered employees, meaning they do not count toward your FTE calculations under the ACA.

Temporary Workers

Temporary workers are employees hired for a specific, short-term period or project, typically through a staffing agency. These employees usually have a defined end date and do not count toward your FTE total because the agency is considered their employer, but if you hire them directly, their hours would count.

Controlled Groups and Aggregated Employers

Controlled groups and aggregated employers refer to two or more businesses that are linked through common ownership or management and must be treated as a single employer under IRS rules. This is especially important when determining ACA responsibilities.

If your business is part of a controlled group or affiliated service group, you are required to combine the total number of full-time and FTE employees across all related entities. Even if no single business in the group has 50 or more employees on its own, the combined count could push the group into Applicable Large Employer (ALE) status.

Failing to account for shared ownership or control can result in compliance issues and unexpected penalties, so it’s important to understand how your organization is structured and how employee counts should be aggregated.

‍