What is FTE?
FTE is an abbreviation for “full-time equivalent.” This is the number of hours worked by a full-time employee of staff over a period of time, normally eight hours a day, five days a week.
It provides a figure that allows organizations to assess how many equivalents full-time employees are employed.
Why is it important to determine FTE?
FTE gives organizations a standardized measurement by which to calculate staffing. By understanding your FTE, you can accurately assess how many staff members you must hire to deliver a project or staff a team.
Used this way, FTE allows you to budget staffing for future projects. It also helps you ensure actual full-time employees and part-time employees are treated fairly, with appropriate salaries, holiday allowances, and other benefits.
What is the purpose of FTE?
The purpose of FTE is to:
- Make a standardized calculation of how many hours a full-time equivalent worker would work in a position over a year based on the number of working hours; this can help assess how many staff are needed to complete a project.
- Help compare the workloads of different types of employees.
- Make sure that part-time and full-time workers are treated equally regarding benefits and compensation.
How to calculate FTE?
For full-time equivalent calculation :
- Use the full-time hours worked in your organization as the basis for calculation. Use that figure if full-time in your organization is 40 hours per week. Adjust it according to what full-time schedule is in your business.
- You then divide the hours worked by one employee by the full-time hours in your organization to calculate the FTE.
- Someone who works 20 hours a week would be a 0.5FTE, however, an employee who works 25 hours a week would be 0.63FTE.
It is important to remember that full-time equivalent FTE calculations are not about the number of people on a team; they are simply there to assess the number of hours worked. You could easily have multiple employees and only one FTE.
What is the difference between FTE and headcount?
While FTE assesses the number of hours worked by employees, headcount looks at the actual number of people employed. For example, You may have two employees working 20 hours a week. This would give you a headcount of two and an FTE of 1.
However, you could also have four employees who work 10 hours a week. In this case, you would still have a headcount of two, but your FTE would be 0.5. Headcount is often used to assess things like benefits and office space. FTE is more commonly used to calculate how many staff are needed to deliver a project.
When it comes to determining your organization’s staffing needs, FTE is a more accurate measure than headcount. FTE can also help you identify when you may need to hire additional staff.
For example, if you have a project that requires 10 hours of work each week, but your current staff only has the capacity for 8 hours, you would need to hire an additional 0.2 FTE to complete the project.
This FTE calculation can be done before actually hiring someone, which gives you time to find the right person for the job and avoid last-minute scrambling.
FTE at work
FTE should not be confused with headcount. Headcount refers to the number of employees working in an organization, where each person counts as “one,” no matter how many total hours they work. In contrast, FTE considers the number of hours worked.
Ways that you can use FTE in your organization could include :
Budgeting for future projects by understanding salary and output
FTE can help you understand how much a project will cost in salary, as well as the number of hours required to complete it. This information can be helpful when budgeting for future projects.
If you know that you will need the equivalent of 50 FTE to deliver one project, you will immediately know how much the staffing costs will be.
Tracking employee productivity
FTE can also be used to track employee productivity. By understanding how many hours are being worked by each employee, you can identify any areas where employees may be falling behind.
Creating a more flexible workforce
The modern workforce wants more flexibility than the standard 9-5. By understanding your FTE, you can create a more flexible staffing arrangement to suit employees’ needs. This can help improve job satisfaction, employee well-being, and company culture.
An easier, fairer comparison between full-time and part-time employees
Part-time employees may feel overlooked because they can not deliver the same amount of work as their full-time counterparts.
But by using FTE to compare productivity and other measures such as absenteeism, HR managers can better indicate how part-time employees are performing vs. full-time employees. This can be helpful in performance reviews and for reward and recognition.
Easier business analysis
Using FTE as a basis for analyzing income, overheads and profits make understanding the costs and output per employee easier.
Headcount analysis can be misleading in this context – FTE makes data simpler to explain when sharing data with external sources.