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Full Time Equivalent (FTE)6 min read
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What is Full-Time Equivalent (FTE) & How to Calculate It?

Getting to know the small details of your workforce is a game-changer for success in your company's operations. A key metric in this analysis is the Full-Time Equivalent (FTE), which helps estimate how many part-time employees—or interns, for that matter—equal a full-time employee. Often overlooked, FTE provides value-added perspectives into staffing levels, budgeting, and overall workforce planning.

If you work in HR or own a business, it's important to understand FTE. This metric offers a standardized way to measure employee contributions, regardless of their employment status or irrespective of an employee's scheduled hours. It's a measure of real output, independent of the sheer number of hours. That’s why, in this guide, we’ll tell you what does FTE means and all you need to know about it so you can take the most out of it.

What does FTE stand for?Let’s talk about Full-Time Equivalent definition or Full-Time Equivalent meaning. Full-Time Equivalent, or FTE, is a standardized metric used to calculate the number of full-time employees a company would have if all employees worked full-time. In other words, it's a measurement that considers the actual hours worked by both full-time and part-time employees, converting them into equivalent full-time positions.

For example, if a full-time job is 40 hours per week, and you have only two employees working 20 hours per week, your company has a 1.0 FTE. This means your employees work the same hours as a full-time worker.

Differences Between Part-Time and Full-Time Jobs →

Calculating FTE is a straightforward process. Here's how to do it in a few simple steps:

  1. Define full-time hours: Establish the standard number of hours constituting a full-time workweek for your organization. This is typically 40 hours but can vary based on company policies. The Fair Labor Standards Act (FLSA) implies that's up to employers to decide what's full-time. Even if 40 is a typical benchmark, the Affordable Care Act and the IRS suggest that working 30 hours a week is enough for full-time employment.
  2. Calculate annual hours: Determine the total number of hours worked annually for each employee. Multiply their weekly hours by 52 (number of weeks in a year).
  3. Differentiate between full-time and part-time: Categorize employees as either full-time or part-time based on the defined full-time position hours.
  4. Calculate total hours: Tally the annual hours worked for all full-time and part-time employees.
  5. Convert to FTE: Divide the total annual hours by the number of hours in a full-time work year (e.g., 2,080 for a 40-hour workweek). The result is your organization's FTE.

Example Calculation

Let's illustrate this with an example. Suppose a company has three full-time workers working 40 hours per week and two part-time employees working 25 hours per week.

  • Full-time employees: 3 employees * 40 hours/week * 52 weeks/year = 6,240 employee total hours
  • Part-time employees: 2 employees * 25 hours/week * 52 weeks/year = 2,600 total hours
  • Total hours: 6,240 hours + 2,600 hours = 8,840 total hours
  • FTE: 8,840 total hours / 2,080 hours/year = 4.25 FTE

This calculation reveals that, while the company has five employees, their total workload is equivalent to 4.25 full-time employees.

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The Importance of FTE in Workforce Management

Full-Time Equivalent gives a broad view of staffing levels, so you can make informed decisions about different aspects of business operations. Let’s see how:

FTE and Workforce Planning

Organizations can figure out how many workers they need for certain tasks or projects by figuring out their FTE. This information helps in:

  • Predicting future staffing requirements: Analyzing workload projections and aligning them with FTE can help anticipate staffing needs for growth or downsizing.
  • Balancing workload: Distributing tasks equitably among employees based on their individual value of a FTE can prevent burnout and improve overall productivity.
  • Succession planning: Identifying critical roles and figuring out how many FTE are needed for replacements can help with business continuity.

FTE for Budgeting, Project Management, and Workload Distribution

FTE also plays an important role in budgeting and financial planning because it provides a clear understanding of labor costs. It helps in:

  • Budget planning: Estimating labor expenses based on FTE allows for good budget planning and distribution.
  • Cost-benefit analysis: Comparing FTE costs to revenue can help you figure out how efficient different departments or projects are.
  • Workload balancing: Distributing tasks based on FTE guarantees fair workload distribution among team members.

The multipurpose nature of FTE makes it a key tool across many industries. Certain sectors have unique requirements and challenges that make FTE particularly necessary. In this section, we’ll show you how.

Healthcare

In healthcare, FTE is indispensable for:

  • Staffing and scheduling: Balancing patient care with staff availability, especially in areas like nursing and emergency medicine.
  • Cost control: Analyzing FTE to optimize staffing levels and reduce labor costs without compromising patient care.
  • Regulatory compliance: Meeting staffing requirements set by regulatory bodies.

Education

The education sector relies on FTE for:

  • Defining the number of educators: Calculating the number of teachers needed based on student enrollment.
  • Performance measurement: Evaluating teacher workloads and productivity.

Try TalentHR employee performance management feature →

Corporate Sector

As we’ve anticipated, the FTE metric is key in the corporate sector for:

  • Workforce planning
  • Budgeting
  • Project management
  • Compliance

Beyond these core sectors, FTE is also widely used in:

  • Manufacturing: For optimizing production lines and shift schedules.
  • Retail: For balancing staffing levels with customer demand.
  • Hospitality: For managing seasonal fluctuations in staffing levels.
  • Non-profit organizations: For allocating resources and demonstrating impact.

Finally, let's see how FTE relates to employment status, along with some legal and compliance considerations.

FTE vs. Headcount

While often used interchangeably, FTE and headcount represent different aspects of a workforce.

  • Headcount is a simple count of the total number of employees on an organization's payroll, regardless of their hours worked.
  • FTE focuses on the workload, measuring the equivalent number of full-time employees based on the total hours worked by all staff.

For example, a company with 100 employees, including 20 part-time workers, might have a headcount of 100 but an FTE of less than 100.

FTE and Employment Types

FTE provides a standardized way to compare employees of different statuses.

  • Full-time employees: Typically work a standard 40-hour week and represent 1.0 FTE.
  • Part-time employees: Work fewer hours than full-time employees and have an FTE value less than 1.0 (e.g., a 20-hour/week employee is 0.5 FTE, but it can be even less).
  • Contract workers: While not typically considered employees for payroll purposes, their hours can be converted to FTE to look at their contributions to the workforce.

Legal and Compliance Considerations

Let’s end up with some legal and compliance considerations that you should consider:

  • Affordable Care Act (ACA): Employers with 50 or more full-time employees (not to be confused with FTEs!) are subject to ACA provisions regarding healthcare benefits. There's no strict regulation for FTEs.
  • Benefits for FTE: You might read a lot about employee benefits that only exist for “FTEs.” But, just like with the Obamacare clause we mentioned, it's likely you're reading about benefits for full-time employees, not about full-time equivalent.

Can FTE be applied to temporary or contract workers?

Yes, FTE can be applied to temporary and contract workers. If you convert their working hours into full-time equivalent employees, you can reasonably estimate their contribution to the overall workload and budget.

Can FTE be adjusted for seasonal workers?

Yes, FTE can be adjusted for seasonal workers. Calculating FTE based on peak and off-peak periods helps you to better manage staffing levels and costs throughout the year.

Can FTE be used to assess the impact of remote work?

While FTE itself doesn't directly measure the impact of remote work, it can be used as a starting point. If you can find a good, accurate FTE benchmark for your remote workers, you can staff up based on it.

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