When it comes to understanding the concept of full-time equivalent (FTE) employees, employers need to know how to calculate the number of FTEs they have. This is important for a range of situations, including determining which labor laws they must comply with and calculating the Employee Retention Credit (ERC). To calculate FTEs, employers should add up the total number of hours of service for which they pay wages during the year (but no more than 2,080 hours for any employee). This amount should then be divided by 2,080.
If the result is not a whole number, it should be rounded down to the next lowest whole number. However, if the result is less than one, it should be rounded up to an FTE. Another way to calculate FTEs is to get the average number of hours worked by part-time employees over a given period of time. For example, if an employer has 20 part-time employees who work 60 hours per month, they should multiply 20 by 60 to get 1,200 total hours worked.
This amount should then be divided by 120 hours (30 full-time hours x 4 weeks) to calculate how many full-time employees their part-time workers represent. The Affordable Care Act rules state that full-time employees are those who work at least 30 hours per week or 130 hours per calendar month. Therefore, employers should add up their full-time and full-time equivalent employees to determine how many full-time equivalents they have. When calculating ERC, employers should note that only amounts paid to employees for the time they did not provide services and at the rate of pay in effect before the increase would be considered qualified wages.
In addition, salaries financed by a Paycheck Protection Program (PPP) loan cannot be included in the ERC calculation. However, PPP funds only apply to eight to ten weeks of wage expenses. Overall, understanding how to calculate FTEs is essential for employers in order to determine which labor laws they must comply with and calculate ERC correctly.