You may have heard the term Full-Time Equivalent (FTE) in the context of the number of employees working, the salary employees receive or the benefits a company is mandated to give their workers.
What does FTE stand for, how do you calculate it and how does it affect a company and its employees?
The FTE definition refers to the number of hours of work of a full-time employee.
Each company determines how many hours they consider full-time, calculating the number of hours worked each week by the number of workweeks a year. For example, a company might consider 40 hours a week, 52 weeks a year, as full-time. If an employee works 40 hours a week, they count as one full-time employee or 1.0 FTE.
If an employee works 20 hours a week for this same company, they only work half the amount as a full-time employee and are 0.5 FTE. An employee who works 60 hours a week works 1.5 times as much as a full-time employee and is considered as 1.5 FTE.
An FTE employee is someone who works the equivalent of the company’s full-time hours and is counted as 1.0. Note that a 1.0 FTE may mean there are two employees both working 0.5 FTE hours, or one employee working at 0.5 and two employees working at 0.25 hours.
If the company considers 30 hours as full-time, an employee working 30 hours would be a full-time equivalent employee. If a company considers 40 hours as full-time, an FTE employee would be someone who works 40 hours, or two employees working 20 hours would be considered 1.0 FTE.
To calculate the Full-Time Equivalent, simply divide the number of hours an employee works by the number of hours the company counts as full-time.
The FTE formula is # of hours worked / # of full-time hours.
To figure out an employee’s FTE:
Remember to deduct any allotted holidays, vacation and sick days from the total number of hours working in a year. For our examples, we are allotting four weeks total time off a year, bringing the number of working weeks down from 52 to 48.
For example, 40 hours a week x 48 weeks a year = 1920 FTE hours in a year.
Remember to deduct holidays and days off. In our example, the company gives all its workers the same four weeks off, but employees may have different benefits packages in some companies, which may change the FTE calculations. For instance, part-time employees may not receive as many days off as their full-time colleagues.
Once a business knows the FTE of each employee, they can calculate their company’s FTE.
For example, company ABC has four employees: Janet, Tom, Ryan, and Gina.
In our example, we calculated Janet at 1.25, Tom at 1.0, Ryan at 0.5 and Gina at .25.
In our example, 1.25 + 1.0 + 0.5 + 0.25 = 3.0
This means that although company ABC employs 4 workers, their combined hours are equivalent to 3 full-time employees.
Why is it important for companies to know their full-time equivalent? A business’s FTE of its employees, or similarly, a school’s FTE of its students, can impact several areas.
For a business to manage their business efficiently, they need to know they have enough manpower to carry out the work. A headcount is not enough.
What does a headcount mean? A headcount is the number of employees a business has. However, that doesn’t always accurately depict the workload a company can carry.
Without knowing how many employee hours they have available, a company may commit to more work than they can realistically complete, or they may underestimate their capacity and pay for more workers than they need.
Continuing with our example above, the CEO of company ABC may expect their business’s output to be at a capacity of four employees, as per the headcount, when calculations show that those four employees’ hours are equivalent to only three.
Conversely, consider a business that has two employees working 60 hours a week each. When the company calculates their FTE, they realize their two employees are the equivalent of three full-time workers. (They may opt to give their employees a generous raise or some extra time off).
Businesses may find it difficult to determine the salary of part-time workers, especially when they work only a few days a week. Using the FTE calculations, a company can clearly see how much the employee works in comparison to a full-time employee.
Back to our sample company ABC, employee Gina works 0.25 times the amount of a full-time employee. Her boss may use that as the basis for the salary negotiations. On the other hand, employee Janet works 1.25 times the amount of a full-time employee and may receive a higher salary than 1.0 employee.
Employers may also base their extra benefits and bonuses on the number of hours worked. A company may have the policy that only employees working 0.75 FTE and higher receive paid vacation days or a longer lunch break.
To calculate a salary based on the FTE hours, take the salary of a full-time employee and multiply it by the FTE of the employee.
For example, if ABC offers $50,000 a year for an employee working 40 hours a week:
Different locations have different laws regarding employer mandates to their employees. Some are based on the number of Full-Time Equivalent workers a company employs.
Companies with a higher FTE may need to provide additional benefits to their employees. It is crucial for each company to know their FTE to ensure they are complying with the law.
The Full-Time Equivalent is the number of hours a business considers a full-time employee to work. While each business may require a different number of hours, legally most employees are full-time at 30 hours a week.
It is important for businesses to know their FTE for internal management and workloads, salary negotiations and to stay in compliance with legal mandates.
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