Demystifying FTE Calculation: Unlocking the Power of Full-Time Equivalency

Human resource metrics outline the human factors contributing to production and company success. Identify how labor costs, revenue per employee, profit per employee, and absence rate are calculated and affect company revenue based on employee labor. The number of full-time equivalent (FTE) employees is an important metric for several reasons. First, it can help you understand your company’s size and how it compares to competitors. Additionally, FTE employees can be used to measure labor costs and employee productivity. Knowing your company’s FTE employee count can help you make smart decisions about hiring, layoffs, and other workforce-related decisions.

This report displays the non-productive hours worked by employees in the selected organization units. The categories that the hours are accumulated in are determined by the settings on the Pay Code configuration screen, Report Assignments tab. First, it can be difficult to accurately calculate FTE if employees work varying hours or have differing workloads. Additionally, some experts argue that FTE doesn’t take into account the quality of an employee’s work, only the quantity. As such, they argue that using FTE as the sole metric for staffing can lead to subpar results. There are a few pros and cons to using full-time equivalent when determining how many employees to staff.

Survivor Bias in Sales Compensation Plans

For instance, in terms of business, calculating FTEs may be of great use when determining how many hours part-time employees should work to equal the number of hours full-time employees work. Such calculations facilitate accounting processes such as estimating wages, payroll, costs, etc. The full-time employees work 40 hours per week and 52 weeks out of the year, meaning that the number of full-time hours worked on an annualized basis is 104,000 hours. This can be calculated by taking the total number of hours worked in a year and dividing it by the number of employees. This method is useful if you want to compare the productivity of employees who work different numbers of hours, or if you want to compare the productivity of employees across years. The FTE for a group is calculated by dividing the total number of hours worked by the number of full-time employees.

By leveraging FTE calculations, organizations can maximize their staff resources and create a more effective workforce. This allows for improved scheduling, greater efficiency, and better work-life balance for employees. A full-time employee who works the regular number of hours per week for their organization or industry is referred to as a 100% FTE (full-time equivalent). This is typically 40 hours per week, however it might vary based on the firm or industry. A 100% FTE is generally compared to part-time or reduced-hours employees, who are regarded less than 100% FTE. To calculate the FTE, divide the figure by the number of hours per week required for a full-time position (40 hours per week).

Different Rules for Different Workers

But if the company has two employees who each work 30 hours per week, those employees would be considered full-time equivalent employees. In this example, we calculated the FTE for a part-time employee, considered the impact of leave on FTE, and adjusted for overtime hours using the overtime rate. These calculations allow organizations to precisely determine the FTE values, providing insights into workforce capacity and resource allocation for effective management.

A full-time equivalent employee (FTE) is a calculation used to measure the workload of employees. To calculate FTE, an organization divides the total hours worked by all employees in a given period of time by the number of hours worked by a full-time employee in the same period. This calculation provides a way to compare the workloads of employees who work different hours.

How Do I Calculate FTE?

In short, it is a crucial term that is important for HR specialists and accountants alike. As you will understand by the end of this article, there are plenty of situations in which knowing the meaning of FTE and how to calculate it can be quite useful. As told earlier, the Time and Motion study is a systematic analysis of a particular task. While studying the productivity, the firm may have already accounted for all the idle Time in between; therefore, we don’t have to add the occupancy again.

For example, if an organization wants to increase its output by 20%, it might calculate that it needs 20% more FTE employees. If the number of FTE employees decreases but the amount of work done remains the same, this might indicate that the employees are becoming more productive. While calculating productivity might seem simple, it requires collecting a lot of data and tracking productivity regularly to be able to make improvements.

Employers follow the rules

If you’ve been managing employees for some time, you’ve likely come across the term “full-time equivalent”. Perhaps you encountered it while you were getting details about the Paycheck Protection Program loan. On the other fte meaning hand, you may be wondering if your company is required to provide health insurance according to the regulations of the Affordable Care Act. Whatever the case may be, you need to learn how to calculate FTE salary.

In that case, it’s unrealistic to say they should target 100% productivity, so you may lower the target. Productivity benchmarks and targets also change depending on the industry. However, many companies will have to establish these benchmarks themselves.

Calculating Productivity in an Organization

To calculate an FTE (full-time equivalent) wage, take the employee’s annual salary and divide it by the number of working hours per year. FTE can show employers when it is time to provide their employees with health insurance, and bonuses because they get timely information to keep in compliance with the law. Employers can determine whether to offer these to their employees when it is reached to a certain number of FTE. With FTE, you can hire full-timers and part-timers for the same project.

So, whether you’re a business owner, HR professional, or just curious about how work can be measured, understanding how to calculate FTE is a crucial part of effective workforce management. FTE allows companies to assess workforce capacity and the real performance of their team, the individuals within that team, entire departments, or even the company as a whole. A single full-time employee represents an FTE of 1, while part-time employees have a 0.5 FTE (or half that of a full-time worker). Regardless of the type of business you’re in, it’s important to keep an updated number of your employees and the hours they dedicate to their work duties. Our productivity expert from Easy Metrics, a labor management system, shares an example to illustrate one possible calculation. The end result using the above example was that the client was able to see down to each employee what the productivity level was and then proactively manage and train accordingly.

Staff/Room Ratio

Full-time equivalent is a measurement unit for the total hours worked that equates to the number of full-time employees of a company within a fiscal year. Also referred to as whole-time equivalent (WTE), FTE determines the number of people or work hours a business needs to complete a project. Outside corporate settings, full-time equivalent is also used to measure a student’s involvement in a project or their class load. Accurate FTE calculations are essential for budgeting and cost management. Knowing the exact FTE of employees gives organizations the power to accurately estimate labor costs. With this data, businesses can align staffing levels with financial resources, optimizing their budgets while controlling expenses.

• Additionally, some experts argue that FTE doesn’t take into account the quality of an employee’s work, only the quantity.
• An FTE calculation for all employees in a company needs to be rounded down to the nearest whole number (usually, 1.0 FTE or greater).
• To calculate the number of hours your employee is expected to work based on their FTE, you’ll need to reverse the previously mentioned process of calculating FTE based on the number of hours worked.
• Moreover, the number of full-time equivalent employees your business had in 2019 affects the amount of the credit.
• Labor standards and machine uptime were give weightings of each 30% with the other factors weighted less since those two factors were the primary driver of productivity.
• To unleash the full potential of FTE in your workforce management endeavors, consider implementing time-tracking tools such as Day.io.

● Full-time workers and their dependents must receive minimum essential coverage that promises “minimum value” and “affordability”. ● If an employee is working for less than 40 hours a week, you assign a 0.5 to them. Meanwhile, if a worker logs at least 40 hours, then assign a 1.0 to them. When the Coronavirus Aid, Relief, and Economic Security Act was implemented, it included the Paycheck Protection Program. It provides small businesses with forgivable loans that can cover business expenses that extend for up to 24 weeks. These expenses include mortgage interest, payroll costs, utilities, and rent.

It compares the amount of resources used against the output in order to create a efficiency ratio. In our hypothetical scenario, our company has the equivalent of 52.40 full-time employees. Using the same formula, the number of part-time hours worked amounts to 5,000 hours per year.

Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. Then, once you get that number, you’ll need to adjust for risk (this requires that you assign a percentage value to represent risk in your organization). And, based on these benchmarks, you may decide to change the target productivity. In many jobs, like customer service jobs, employee don’t have much control over their own productivity (i.e. it depends on how many calls they receive, which they can’t control).