Understanding and utilizing Full-Time Equivalent (FTE) is a powerful tool for accurate budgeting and forecasting, crucial for a company's relevance and competitiveness in the fast-changing business landscape.
Determining the hours worked by full and part-time employees within a specific time frame helps companies plan their HR-related expenses, administer payroll and benefits, and comply with the law.
Consequently, companies use full-time equivalent (FTE) to determine the amount of full-time hours their staff work.
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Let’s dive in!
Full-Time Equivalent (FTE) is a metric that indicates the number of hours a full-time employee works for a company.
By counting hours rather than employees, FTE allows you to combine the part-time workforce’s hours and determine the number of full-time workers needed to work those hours.
Typically, companies consider 40 hours per week as full time and full-time employees have a FTE of 1.0.
If your company has one part-time employee working 20 hours per week, they would have a 0.5 FTE. On the other hand, two part-time employees working 20 hours per week each make a 1.0 FTE as their working hours add up.
While FTE and headcount are units of measurement related to an organization's members, they consider different indicators: the number of employees (headcount) versus the number of full-time working hours (FTE).
Headcount helps Human Resources plan and ensure the company has the correct number of skilled employees.
FTE is a key metric that allows HR to standardize headcount, forecast staff budgets, and simplify payroll complexities.
FTE is crucial, especially for companies with a multi-status workforce consisting of full-time, part-time, and contract-based employees.
You can convert working hours into FTE units following the next steps.
Create a list with the names of all your “traditional” employees and their schedules after deducting paid time off and sick leaves.
When compiling this list, leave out your freelancers, independent contractors, or sole proprietors, as they are considered non-employees.
Most companies define full-time positions as those working between 30 and 40 hours per week. If your organization considers 40 hours per week full-time, those working below this threshold are part-time employees.
Before proceeding to the next step, please consider the ACA definition of a full-time employee for compliance reasons.
Multiply the number of weeks in a year (52 weeks) by the number of weekly hours for all your employees.
For accuracy, consider the architecture of your workforce: the number of full-time and part-time employees and their schedules.
Determine full-time hours and part-time hours and add them up.
To calculate the FTE for your part-time employees, you must divide the number of hours worked by part-timers (Step 4) by the annual hours worked by one full-time employee.
To identify the company’s Full-Time Equivalent, add the FTEs your full-time employees worked (1 FTE for each full-time worker) to the part-time FTE amount determined during the previous phase (Step 5).
For more clarity, let’s talk numbers.
Suppose your company has a multi-status workforce consisting of full- and part-time employees.
Employee Name | Total work hours per week | Type of employment |
Employee A | 40 hours | Full-time |
Employee B | 40 hours | Full-time |
Employee C | 20 hours | Part-time |
Employee D | 10 hours | Part-time |
Your business defines 40 hours worked per week as a full-time position.
Multiply weekly hours by 52 (number of weeks in a year) to determine how much each employee works annually.
Employee Name | Total work hours per week | Type of employment | Annual worked hours |
Employee A | 40 hours | Full-time | 2,080 (1 FTE) |
Employee B | 40 hours | Full-time | 2,080 (1 FTE) |
Employee C | 20 hours | Part-time | 1,040 (0.5 FTE) |
Employee D | 10 hours | Part-time | 520 (0.25 FTE) |
Full-time employees (A + B): 2,080 x 2 (full-time employees) = 4,160 full-time hours
Part-time employees (C + D): 1,040 + 520 = 1,560 part-time hours
Divide the total number of annual part-time hours (C + D = 1,560) by the annual hours worked by one full-time employee (A or B).
1,560 hours/ 2,080 hours = 0,75 part-time FTE
Aggregate full-time FTE (2.0 since your company has two full-time employees) with part-time FTE determined during the previous step.
2.0 (full-time FTE) + 0.75 (part-time FTE) = 2.75 total FTE of your company
Therefore, in our example, the headcount is four employees, and the FTE is 2.75.
Now, you know how to calculate the FTE for your workforce. You can also check the chart below with FTEs for employees working less than the standard 40-hour week.
FTE | |||
|---|---|---|---|
Standard 40 Hours-Week | |||
Hours | FTE | Hours | FTE |
40 | 1.000 | 20 | 0.500 |
39 | 0.975 | 19 | 0.475 |
38 | 0.950 | 18 | 0.450 |
37 | 0.925 | 17 | 0.425 |
36 | 0.900 | 16 | 0.400 |
35 | 0.875 | 15 | 0.375 |
34 | 0.850 | 14 | 0.350 |
33 | 0.825 | 13 | 0.325 |
32 | 0.800 | 12 | 0.300 |
31 | 0.775 | 11 | 0.275 |
30 | 0.750 | 10 | 0.250 |
29 | 0.725 | 9 | 0.225 |
28 | 0.700 | 8 | 0.200 |
27 | 0.675 | 7 | 0.175 |
26 | 0.650 | 6 | 0.150 |
25 | 0.625 | 5 | 0.125 |
24 | 0.600 | 4 | 0.100 |
23 | 0.575 | 3 | 0.075 |
22 | 0.550 | 2 | 0.050 |
21 | 0.525 | 1 | 0.025 |
FTE is an essential tool in workforce management. It allows you to convert full-time hours your staff work, regardless of their employment type, into standardized FTE units. This facilitates analyzing the company's performance against its overall goals and comparing it to competitors in the market.
For instance, FTE can be used to evaluate team performance. FTE data allows you to assess performance and compare productivity levels across different teams. The FTE calculation helps you establish high-performing teams and areas for improvement and intervene where and when necessary without significant disruptions.
Making data-driven decisions requires comprehensive and accurate insights in the fast-evolving business environment. Here are the key benefits:
FTE calculation is a strategic tool for calculating the number of workers needed to fulfill and exceed the company’s demands and goals. Using the FTE tool, you can confidently prevent overstaffing and understaffing while ensuring a cost-effective use of your resources.
FTE data is a reliable means to evaluate performance and compare productivity levels across different teams. The FTE calculation helps you confidently establish high-performing teams and areas for improvement and intervene where and when necessary without significant disruptions.
By comparing your company’s actual FTE against the targeted FTE, you can determine gaps, remove inefficiencies, address staffing inconsistencies, and improve productivity.
Understanding FTE counts is essential for budget considerations, especially in project management. You can estimate labor expenses and timelines and update the budget accordingly. Knowing the FTE-related costs allows you to optimize the financial forecasting processes and identify the most efficient spending strategy.
FTE comes in handy when analyzing your workforce and deciding whether hiring a part-time or full-time employee is more cost-efficient. By converting working hours into standard units (FTE), you can identify staff needs during peak and off-peak seasons. Once you comprehend the pattern, you can plan your hiring process more strategically.
Many regulatory requirements related to labor laws and employee benefits are based on FTE units. Accurate FTE gives you valuable insights into your workforce structure. Understanding FTE allows you to manage benefits and comply with the ever-changing regulatory landscape.
A full-time employee is a person who works a standard schedule per week, typically 40 hours. Full-time Equivalent refers to a unit measuring the workload of your entire workforce, regardless of whether they are part-time or full-time employees.
FTE of 100 % is the same as FTE 1.0. Companies decide the exact number of working hours representing FTE of 100 %, depending on their policies and labor laws, but usually FTE 1.0 = 40 hours per week (2,080 hours annually).
An FTE salary refers to an employee's wage converted into FTE within a period, usually a full year, regardless if the worker holds a full-time or part-time position.
For instance, a full-time worker works forty hours weekly and gains $50,000 annually. Employees working thirty hours a week part-time at the same company would make 0.75 FTE as they work 75% of the full-time equivalent of 40 hours.
If you know the Full-Time Equivalent and want to determine an employee's hours worked, multiply their FTE rate by 40.
For example, one of your workers has an FTE of 0.75.
In this case, the conversion will be 0.75 x 40 = 30 working hours per week.
The Affordable Care Act (ACA) specifies full-time as 30 hours per week or 130 hours per month. To be ACA-compliant, you must follow this rule and consider every employee working 30+ hours as 1.0 FTE. Furthermore, if your workforce has a minimum of 50 FTEs, the ACA requires you to provide them with health benefits.
To be ACA-compliant, you must calculate your FTE rate.
Determining FTE instead of headcount helps businesses manage their resources effectively and become more productive and competitive.
By understanding how the FTE measurements work within the ever-changing business landscape, companies and individuals can smoothly adapt and navigate the shifts in today’s labor market.