Full Time Equivalent (FTE)

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21 Aug, 2024

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Full Time Equivalent (FTE) Meaning

Full-Time Equivalent and refers to the total number of full-time hours completed by an employee who is either on company roles on a full-time or part-time basis or a contract. Such calculation helps in comparing across business organizations.

Based on the number of hours a company decides as full time workweek, the FTE is computed. For example, if for a company, 30 hours a week is full-time working hours, the employees devoting 30 hours of their week to work are full time equivalent employees.

Full-Time Equivalent (FTE) Definition

Full Time Equivalent (FTE) Explained

Full Time Equivalent (FTE)is the unit of measurement that measures the ratio that represents the hours worked by an individual employee within a week, generally from Monday to Friday. With the help of Full Time Employee hours, the companies can identify their full-time employees and part-time staff members. In fact, any working for hours less than full-time but more than part-time can also be identified and paid accordingly.

As stated above, if a company has a workweek of 30 hours, and employees complete those 30 hours, they are identified as full-time employees, while there may be employees devoting half of it, i.e., 15 hours, they become part-timers.

It is used in the projects to analyze the requirement of staff and the cost of staffing as in case of a project when the permanent employee is not required, one can use employee 1-2 extra staff for that particular project only. After completing the project, you can remove them without any negative effects of the termination of an employee.

When the working hour and the type and nature of the job are decided for an individual, budgeting and other administration duties become easy to handle. Plus, it becomes easier for the firms to decide on how much to pay which employee as per the time they devote to taking the company forward. The FTE rule must be ACA-compliant. ACA stands for Affordable Care Act, which requires employers to offer certain benefits to employees if they have 50 or more FTEs.

How to Calculate?

To calculate the full-time equivalent employee following steps are to be followed –

Step 1: Firstly, convert the number of hours that the company's part-time employees work on a full-time basis. This is required because the full-time employee's work will be used to calculate the final count of the FTE.

The formula to calculate the hours worked by part-time employees is as follows:

Hours Worked by Part-Time Employees = Number of Part-Time Employees in Company * Total Weekly Hours * Total Number of Weeks.

Step 2: After calculating the hours worked by the part-time employees in step 1, hours worked by the full-time employees of the company during the period will be calculated.

The formula to calculate the hours worked by full-time employees is as follows:

Hours Worked by Full-Time Employees = Number of Full-Time Employees in Company * Total Weekly Hours * Total Number of Weeks.

Step 3: After calculating the hours worked by the full-time employees, the total hours worked will be calculated by combining hours worked by part-time employees (as calculated in step 1) and hours worked by full-time employees (as calculated in step 2)

The formula to calculate the total hours worked in the company is as follows:

Total Hours Worked = Hours worked by Part-Time Employees + Hours Worked by Full-Time Employees.

Step 4: Lastly, the full-time equivalent will be calculated by dividing the total hours as calculated in step 3 by the total hours in the period.

Formula

The formula to calculate the full-time equivalent (FTE) is as follows:

FTE per year = Total Hours Worked during a Year/ Total Working Hours per Year

FTE per Month = Total Hours Worked during a Month / Total Working Hours per Month

FTE per Week = Total Hours Worked during a Week / Total Working Hours per Week

Example

Let us take an example to see how to calculate full time equivalent:

Suppose a company Mobi Incorporation, wants to calculate its full-time equivalent per year (FTE per year). During the year, the company hired two part-time employees who worked 20 hours each per week for 50 weeks and three part-time employees who worked 18 hours each per week for 40 weeks. Also, the company has three full-time employees. Calculate the full-time equivalent per year of the company for the mentioned period?

Solution:

Step by step calculation of the full-time equivalent per year is provided as below-

Step 1: Converting the number of hours which are worked by the part-time employee in the company into a full-time basis using the below-mentioned formula:

Hours which are worked by part-time employee = (2*20*50)+(3*18*40) = 4160 Hours

Step 2: Calculation of the hours worked by full-time employees.

The formula to calculate the hours worked by full-time employees is as follows:

Hours worked by full time employees = 3 * 40 * 52 = 6240 Hours

Where,

Total weekly hours are calculated considering 8 hours and five days in a week, i.e., 8 * 5 =40 hours.
Total number of the weeks in a year = 52 weeks

Step 3: Calculation of the total hours worked:

The formula to calculate the total hours worked in the company is as follows:

Total Hours worked = 4,160 Hours + 6,240 Hours = 10400 Hours

Step 4: Calculation of the FTE per year.

The formula to calculate the full-time equivalent (FTE) is as follows:

Total working hours per year is calculated considering 8 hours, five days a week, and 52 weeks in a year = 8 * 5 * 52 = 2,080 hours.
FTE per year = 10,400 Hours / 2,080 Hours = 5 FTEs
Therefore, Mobi Incorporation's full-time equivalent (FTE) is 5 FTEs.

Importance of Calculating FTEs

To understand what is full time equivalent, it is vital to have a look at its significance. Let us have a look at a few of them below:

The calculation of FTE is important in resource management and project management, especially when the decisions related to the employment of the staff are to be taken
It helps to calculate the total number of personnel required for completion of the work in the available period.
FTE helps estimate the total labor cost that is to be incurred during the completion of the project.
Moreover, in the cases of companies with a large number of part-time employees, the FTE helps to know how many part-time employees are equal to full-time employees.

Full Time Equivalent vs Full Time Employee

According to the ACA, full time equivalent and full time employee are two factors based on which a firm should assess its business size. While both terms seem to indicate much similarity, they differ widely. Let us have a look at how these differ:

Full time employees are those who work for at least 30 hours or more in a week, while full time equivalent is all the employees with different working hours, including full time employees, part-timers, etc.
Only permanent employees comprise full time employee count. On the contrary, full time equivalent can be any employee working for any number of hours for a business.
Some of the examples of full time employees include human resource managers, financial analysts, executives, etc. On the contrary, examples of FTEs can include Chief Finance Officer, human resource manager, etc.