Full-Time Equivalent (FTE) Definition
The full form of FTE is full time equivalent and refers to the total number of full time hours completed by an employee who is either on companies roles on a full time or part time basis or on a contract and such calculation helps in making comparison across business organization.
How to Calculate FTEs?
In order to calculate the full-time equivalent employee following steps are to be followed –
Step 1: Firstly, convert the number of hours which are worked by the part-time employees in the company on a full-time basis. This is required because the full-time employee’s work will be used for the calculation of 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, 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, with the total hours in the period.
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
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For eg:
Source: Full Time Equivalent (FTE) (wallstreetmojo.com)
Example of Full-Time Equivalent
Let’s take an example.
Suppose a company Mobi Incorporation wants to calculate its full-time equivalent per year (FTE per year). During the year company hired two part-time employees that worked 20 hours each per week for 50 weeks and hired three part-time employees that 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 the 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 in a day 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 in a day, five days in 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, the full-time equivalent (FTE) of Mobi Incorporation is 5 FTEs.
Importance of Calculating FTEs
The calculation of FTE is important in resource management as well as in project management, especially when the decisions related to the employment of the staff are to be taken as it helps to calculate the total number of personnel required for completion of the work in the available period of time. Also, FTE also helps in estimating the total labor costLabor CostCost of labor is the remuneration paid in the form of wages and salaries to the employees. The allowances are sub-divided broadly into two categories- direct labor involved in the manufacturing process and indirect labor pertaining to all other processes.read more that is to be incurred during the completion of the project. Moreover, in the cases of companies, those are having a large number of part-time employees; the FTE helps to know how many part-time employees are equal to full-time employees.
Conclusion
FTE (full-time equivalent) 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. 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 you can use employee 1-2 extra staff for that particular project only, and after completion of the project, you can remove them without any negative effects of termination of an employee.
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