FTE calculates and determines how many full-time employees the total number of employees in a company or business is equivalent to. This includes full-time employees, part-time employees, contractual employees, and anyone working for the company.
Employers use FTE to:
Calculate working capacity
Calculate expenses and budgeting
Hire or not to hire more employees
Part-time workers' hours and pay rates can be standardized by the HR department using FTE. For instance, if the ratio of a part-time worker's pay to that of a full-time worker is 1:2, then their FTE is 0.5 since they work half as many hours for half the pay.
The FTE can also be used for a headcount analysis. FTE is useful for budget analysts since it allows them to compare staffing levels to outputs or profits readily.
Full-time Equivalents (FTEs) are also used to divide workers across departments according to their individual needs. Management and human resources can determine the necessary number of FTE by analyzing individual projects, job descriptions, or any other employment need.
How to Calculate FTE Salary?
FTE is calculated based on a few standards:
A workweek consisting of 5 working days
An 8-hour workday
A 52-week year
A full-time employee will work 40 hours weekly
So, for example, if an employee works 30 hours weekly, they have an FTE of (Total hours worked / 40) = 0.75.
How are Headcount and FTE Different?
Headcount is a phrase used to indicate the total number of full-time and part-time employees an organization employs. To determine headcount, each individual is counted just once, regardless of the number of hours they put in.
Full-time work is defined as certain hours specified by the full-time equivalent (FTE) standard.
If a company determines that full-time employment is defined as working 40 hours per week and two employees working 20 hrs weekly, then the two would be considered a 1.0 FTE.
Why is FTE Calculation Necessary?
It is crucial for a firm, particularly one that employs many part-time employees, to convert worked hours into FTEs. This provides the organization with the information necessary to determine the number of full-time employees that the part-time employees are equivalent to.
It is crucial and mandatory for an employer to calculate FTEs because doing so enables them to better understand their part-time workers' efficiency and effectiveness based on the amount of work done.
Part-time workers are typically paid less and don't receive the same perks offered to full-time employees.
What Does 100% FTE Mean?
100% FTE describes an employee who works full-time and performs as much work as expected from one full-time employee. 1.0 FTE also represents the same thing.
By the same token, a 0.75 FTE means that an employee is performing the equivalent of 75% of the work of a full-time employee.