FTE (Full-Time Equivalent)

What is FTE?

Employers can standardize their headcount by combining the hours of their part-time employees to determine how many full-time employees would work those hours. This method is known as full-time equivalent (FTE). Companies can simplify the payroll complexity of a multi-status workforce (full-time, part-time, and contract workers) and generate more precise budgeting estimates by basing strategic choices on FTEs rather than actual employee numbers.

How are FTEs determined?

The total number of hours worked by part-time and contract employees can be multiplied by the company's definition of full-time employment to turn them into FTE units. Although the 40-hour workweek, which consists of eight hours per day, five days per week, is likely to be followed by most U.S. businesses, this isn't always the case, so make sure to adapt your FTE estimate accordingly.

A part-time employee's FTE value, for instance, would be 0.65 (26 hours worked / 40 hours) if they worked 26 hours a week. Furthermore, if a worker puts in a full 40 hours per week, their FTE value is 1.0 (40 hours worked / 40 hours).

Even if the majority of your staff is actually part-time, this computation offers a straightforward way to express how many theoretically "whole" full-time employees are on the firm payroll.

For instance, if two part-time employees each work four hours per day for ten days each over a weekly pay period, their combined 40-hour total during that pay period corresponds to one full-time equivalent (FTE) on the company's payroll.

How Can FTE Be Converted to Hours?

Simply multiply the full-time equivalent rate (FTE) by 40 to get the employee's regular hours. For instance, if an employee has an FTE of 0.80, 40 times that figure equals 32 hours of work per week for that employee.

What Does FTE Pay Mean?

To determine the pay for part-time employees, HR departments use FTE salaries. The FTE pay of a part-time employee is determined by multiplying their FTE value by the wage paid to an equivalent full-time worker. Consider a graphic designer who works full-time, earning 48,000 dollars annually or about 923 dollars per week. The same company's contract or part-time graphic designer works 22 hours per week. The result of multiplying this by 40 is an FTE value of 0.55. Simply multiply their FTE by the full-time employee's annual and weekly salaries to determine their FTE wage. The yearly FTE wage for our part-time employees would be 26,400 dollars, and their weekly pay would be $507.

Conclusion

An organization can more easily assess performance both internally and in relation to competitors by converting the hours worked by a multi-status workforce into FTE employees. For instance, many businesses use FTE to compare part-time employees' overall performance to that of true full-time workers when budgeting for Hiring, Training, Turnover, and Other expenses.

An organization can uncover possibilities to increase efficiency, for instance, by comparing the two groups over time when hiring seasonally or deciding between part-time and full-time staffing.

Since FTE is employed to reveal such facts, it is possible that the net costs of hiring more part-time workers are actually lower than the more obvious cost of paying overtime to current employees.

Understanding per-employee costs and output in a large business can be made simpler by utilizing FTE in conjunction with other performance measures.