For example, if your full-time employee is obligated to work only 30 hours a week, you should use that number in your calculations instead of 40, as in our case. The first step in calculating FTE hours is to determine the number of hours an employee is expected to work in a given period. This number will be different based on the type of job and the number of hours worked. For example, a full-time employee typically works 40 hours a week, while a part-time employee may work 20 hours a week.

For example, if your entire staff works part-time, the FTE employee is a hypothetical full-time worker by which your part-time workers are measured. A single full-time employee is the baseline of the measurement and has an FTE of 1.0, while a part-time employee working half as many hours has an FTE of 0.5. These values are combined with simple addition, so that three part-time employees working half as many hours as a full-time employee would have a total FTE of 1.5. This is where the concept of the full-time equivalent (FTE) employee comes in. This is done by counting somebody who works half as much as a full-time employee as half an employee, and so on. It might sound cold, but it’s a vital metric when companies are applying for government loans, and when determining whether the company is large enough to have to follow certain laws.

FTE is used to convert the hours worked by part-time employees into those worked by full-time employees. This is for ease of calculating the cost — in time, money, and personnel — of a project, since it standardizes the unit of measurement. FTE stands for full-time equivalent, and it’s a unit of measurement equal to the number of hours typically worked by a single full-time employee at a given company. FTE is a way for employers to add up and compare a mix of part-time and full-time workers, by combining their relative working hours into one simple and easy to understand value. Full-time equivalent (FTE) is a way for employers to standardize their headcount and combine their part-time workers’ hours to figure out how many full-time employees would work those hours.

First, it is necessary to determine the number of hours worked by part-time employees. Based on an FTE of 1.0, we calculate employees work 2,080 hours per year. Furthermore, this value is used only as a basis for calculating the annual FTE and reflects the hours of an employee who works 5 days a week, 8 hours a day. Five of them work full-time (40 hours per week), three occupy a part-time position each working 20 hours a week, and the other two each work 10 hours per week. The full-time equivalent converts the hours worked by part-time employees into hours worked by full-time employees. Some businesses list this information in their employee handbooks or offer letters.

As a business owner or project manager, sooner or later you will come across the FTE abbreviation. Access and download collection of free Templates to help power your productivity and performance. It could be for budget purposes or to ensure you meet various legal requirements set by the IRS or other government agencies. Now that we’ve got that out of the way let’s look at how to calculate FTE. Trends in this ratio can show which teams are operating efficiently and which may be over or understaffed relative to output.

  • Seeing the accrual of leave in real time makes it easier to calculate the resources needed at any given time.
  • Finally, FTE is important for businesses when it comes to compliance with labour laws.
  • Sign up for today and redefine how you understand and manage your workforce.

Determining the amount of workers in your organization and the amount of time they work is crucial for budgeting, benefits administration and legal purposes. That said, full-time equivalent (FTE) is a metric used to determine the total number of full-time workers that you have in an entire organization. In this article, we’ll teach you everything that you need to know about calculating this metric and why it matters. Keeping track of employee hours ensures everyone gets a fair share of the workload. It also keeps part-time workers from going over their allotted hours each month.

How To Calculate FTE?

Full-time equivalent (FTE) is by dividing the employee’s scheduled hours by the company’s scheduled hours worked on a weekly full-time basis. If a company has a work schedule of 40 hours a week, the expectation for employees working 40 hours per week is 1.0 FTE. For a business, especially one with a large number of part-time workers, converting work hours to FTE is important to help the company know how many full-time employees are equal to part-time employees. To determine whether a company is an Applicable Large Employer (ALE), the ACA says that a company must have an average of 50 or more FTE employees over the course of one year. The ACA considers a full-time employee one who works at least 30 hours per week. The FTE employee doesn’t have to actually exist, and can be a combination of part-time employees.

  • You could also allocate work to 4 part-time employees to do the same work in one week.
  • Depending on the country your business is established in, calculating FTE is needed to determine which employment laws you need to follow or what benefits your company is eligible for.
  • Keep reading for a comprehensive explanation on how to  set yourself up for success  with FTE calculations, or use the links below to jump to a section you’d like to learn more about.
  • The list should include the employee’s name and the number of hours they work per week.
  • The underlying period can be, for example, a day, a month or even a year.

The chart below displays the number of weekly hours worked with the corresponding FTE under the standard 40 work-week. FTEs can be compared to revenue output and other productivity metrics to assess workload balance across the organization. By multiplying the number of FTEs by the average cost per FTE, HR can predict total labor budget needs more precisely than just using headcount alone. For example, you’ll want more hands on deck in a restaurant during the busy holiday and summer seasons.

Understanding Global Labor Arbitrage: Definition, Pros & Cons

This tells you how many FTE employees your part-time workers add up to. Add this to the number of actual full-time employees you have to find your total FTE. It is critical for accounting purposes and determining wages, and for calculating the company’s expenses when paying its workers.

This can help them to determine if the existing employees are working enough hours to cover the workload. Now add the total number of hours worked by full-time employees to that of part-time employees to get the total number of hours for all employees. As you can see, the part-time employees are converted into the performance of a full-time employee. So the FTE is not the number of employees in a company, but the equivalent of a full-time employee. Because the number of employees says nothing about a company’s actual work performance. Additionally, FTE calculations give you a better sense of your current staffing levels so that you can plan and budget accordingly.

If a company considers 40 hours per week as the basis for a full-time position, then anyone working an amount of hours below this range is considered a part-time employee. The same logic is applied if a company considers 30 hours per week as the standard for a full-time position. Whether an employer is an ALE under the shared responsibility provisions will depend on the size of the organization. Those employing an average of at least 50 full-time employees including full-time equivalent employees are considered to be an ALE. A full-time equivalent employee refers to a combination of part-time employees that add up to one or more full-time employees.

FTE (Full-Time Equivalent)

By adding the full-time and part-time hours worked, we can calculate the total number of hours worked by all employees for the year as 109,000. The calculation of FTE is an employee’s hours divided by the employer’s number of hours considered a full-time workweek. Speaking of time off policies, if you’re in the U.S., the Affordable Care Act requires ALEs (applicable large employers) to offer health insurance to their workers.

FTE formula

If an organization considers full-time to be a 40-hour working week then one full-time employee will count as 100% FTE. 100% FTE can also be achieved in several other ways, for example, through two part-time employees (who each work 20 hours per week) or four employees who work 10 hours per week. It could require 15 full-time employees (600 hours/40 hours) five days to complete, 30 part-time employees five days to complete, one full-time employee 15 weeks to complete, or a combination of these.

To identify the FTE of part-time employees, divide the total hours worked by part-time employees by the annual hours worked by one full-time employee (i.e., 2,080 hours). Calculate the FTEs by determining the number of hours worked by full-time or part-time employees in a year. To do this, multiply the number of weeks in a year with the number of hours for a full-time position. For the purposes of determining ALE status, the IRS defines a full-time employee as one who works on average 30 hours per week or 130 hours per month (or more).

What is Full-Time Equivalent (FTE)?

So, if your company employs 900 half-time employees, it would still be eligible for the program because 900 employees working half-time would be equal to 450 FTEs. Depending on the country your business is established in, calculating FTE is needed to determine which employment laws you need to follow or what benefits your company is eligible for. Bear in mind that FTE isn’t about workload or productivity – it’s only about hours. Even if Jack gets more done working half-time than Lisa, who works full-time, he is still 0.5 FTEs and receives 0.5 of the FTE salary.

FTE In Workplace

FTE or full-time equivalent is a tool to help you gauge the potential productivity of your business or company. FTE is a crucial term in project management for resource allocation. Keep on reading to learn what FTE is, how it is calculated, and how it is used in project management. Additionally, FTE measurement enables the organization to assess other aspects of corporate accounts, employee compensation, and other expenses and estimate the effectiveness of full-time and part-time personnel. Another important factor to consider when looking at FTEs is the cost per FTE.

Since it standardizes the metrics, it is easier to calculate the cost of a project in terms of time, money and personnel. A full-time employee (FTE) is defined as 2.5, for example, one employee worked 50 hours, one worked 10 hours, and one worked 40 hours on a project during a particular week. If a full-time employee works 40 hours in a week, this equals a total of 100 hours during that week. This includes three full-time employees that work 40 hours per week. One part-time employee who works ten hours per week and one part-time employee who works 25 hours per week. For the FTE measurement, an employer calculates all employees’ hours and determines a monthly average for the year.

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