Full Time Equivalent (FTE): Meaning & How Is It Calculated?
by Shahnawaz Alam Job & Career 15 September 2023
Employers who want to forecast their workforce need must know about FTE or Full Time Equivalent.
When running a business, an employer needs to concern themselves with budgeting, the strength of their workforce, and how they can perform against a timeframe. When the employer has figured out their Full-Time Equivalent, they will better manage their workforce, employee benefits, and legal aspects.
So, what does Full Time Equivalent mean? If you want to find out, go through this article. Here, I have provided full detail about what Full Time Equivalent is and how to calculate it.
What Is Full Time Equivalent?
Full-time equivalent is a metric that helps businesses determine the number of full-time employees and how long they work to achieve the organization’s objective. In simple words, full-time equivalent measures the total number of full-time and part-time employees a company has. This measurement leads to the full-time employment the company provides.
This metric helps the company with hiring forecast. More so, it allows businesses with tax credits and helps companies to become compliant with the ACA (Affordable Healthcare Act). Employers also better understand running their employee payrolls and tracking their work hours with FTE.
How Does Full-Time Equivalent Work?
What is the meaning of FTE? In business, FTE means the number of hours the employees work within the organization. This concept is purely to calculate the number of hours employees work. Here, the working hours are the detrimental factors instead of simply the number of employees in the organization.
This approach results in having a clear number in hand to budget, forecast staff, and calculate wages. So, how does FTE work for a business?
Here is a simple example to help you understand –
Let’s say a business considers 40 40-hour work week full-time work. So, if they have four employees and all of them work for 10 hours every week, then their effort adds up to make 1.0 FTE.
Employers have a better understanding of employment classification through FTE. Most business analysts and project managers usually utilize Full Time Equivalent for the estimation of their workload and the workforce needed.
Thanks to this information, business owners can easily forecast the budget for their next financial year. When businesses use FTE for the annual forecast, then the term is modified into work-year equivalent or WYE.
The FTE metrics also allow the HR managers to standardize the employee evaluation process. They consider a half-time employee as 0.5 and provide them with 0.5 of the salary of the full-time employees.
How To Calculate Full-Time Equivalent Or FTE?
When it comes to calculating FTE, you can do it by following the six different steps mentioned below.
1. Take A Count Of Your Employees & Hours Worked
First, you have to list down all of your employees and the number of hours they have worked for you. Start with the people who you pay through a year-end W2 form. This list needs to include the names of the employees and the total number of hours they have worked within a week.
Also, you have to exclude the time you allotted for paid or sick leave. Also, when calculating FTE, you cannot include 1099 contractors because they are not considered employees.
2. What are The Full Time Working Hours for Your Employees?
Next, you have to outline the number of hours that you consider full-time employment. In most of the organizations, employees have a total work hour of 40 to 30 hours per week. So, if your organization has 40 hours/week as full-time employees working below, that are not full-time employees, you can apply the same if your company has a 30-hour work week.
3. Calculate Annual Hours Worked
Are you done counting the standard work hours for the week? Now, it is time to calculate the annual hours of work your employees have done. So, how do you do that? You have to multiply the total number of weeks your organization has worked for within the year with standard weekly work hours for the full-time employees.
4. Add The Work Hours For Full Time And Part Time Employees
Now you have to sum up the total number of hours your employees have worked in the year together.
5. Calculate The Part-Time FTE
Now you have to find out the part-time FTE of your part-time employees. How to do that? First, take the total number of hours your part-time employees have worked in the year. Then, divide it using the annual hours that a full-time employee works (2080 hours).
6. Calculate The Total FTE
Now, you have to calculate the total FTE. So, first, sum up your full-time FTE the workers have worked for. Each of your full-time employees counts as 1 FTE. Now, add the number of FTEs to the part-time FTE of the previous step. This should help you calculate the total FTE.
Benefits Of Calculating Full-Time Equivalent
Here are some of the benefits of counting full-time equivalent –
FTEs can help hiring managers and project managers complete their objectives within time. It allows managers and project managers to find out labor costs and create timelines for their specific projects that need to be done in time. The finance teams can also use this insight for revenue and profit per employee calculation.
FTEs can help hiring managers understand the number of part-time and full-time employees they need to hire. It helps them identify the number of hours employees have to work. It provides a good assessment of the workload and the workforce at hand.
Considering Needs For Hiring
A full-time equivalent lets hiring managers understand the cost-effectiveness of hiring full-time and part-time employees. This will give managers a hiring insight, helping them understand whether they should hire more or not.
One of the key aspects of calculating full-time equivalents is understanding the hiring needs. Employers also understand their workforce strengths and the workload at hand using FTE. Now that you know about full-time equivalent, do you think it can help your business?
Share your insights about this topic in the comment section. Thank you for reading.