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FTE Meaning: What Does FTE Mean In Business?
Business

FTE Meaning: What Does FTE Mean In Business?

Julia Neves
April 12, 2022
13 minutes to read

Navigating the complex world of business operations, a crucial factor that stands out is human capital management. This domain has a decisive impact on a company’s overall productivity, efficiency, and growth trajectory. An essential aspect of this field that is often overlooked but holds immense significance is the concept of Full-Time Equivalent employees (FTEs). So, what exactly are FTEs, and why is it essential to comprehend them in business? How do you calculate them, and why is this calculation vital for strategic decisions?

Understanding FTEs helps businesses optimize their workforce and provides invaluable insights into their organizational structure, enabling efficient resource allocation. This nuanced comprehension can lead to more effective workforce planning, budgeting, and operational efficiency.

However, like any other business metric, FTEs have their limitations. Fortunately, some tools and techniques help businesses accurately compute and monitor their FTEs – simplifying this critical process.

In this comprehensive guide, we explore the significance of FTE in the business world by providing insights into its calculation, strategic benefits, drawbacks, and the best tools for tracking it all. Our goal is to present a thorough understanding of FTEs and highlight how they shape the path toward business success. Let’s jump in and decode the world of FTEs and their powerful influence on businesses.

We’ll discuss: 

Let’s start by taking a closer look at what FTE actually is.

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FTE Mean In Business: Full-Time Equivalent

In a nutshell, FTE is an acronym for full-time equivalent — a figure that reflects the number of full-time workers in your company. Before we delve into how to calculate it, there are a few important points to note.

First of all, FTE includes both full-time and part-time employees. One FTE does not necessarily equal one employee; one employee working 40 hours per week is equivalent to one FTE, but two employees working 20 hours per week each are also equivalent to one FTE.

This is because the purpose of an FTE is not to see how many employees you have, but rather to measure the amount of work that’s being done. In other words, it allows you to compare different types of staffing arrangements on a level playing field.

It’s also important to note that FTE is not just limited to full-time and part-time employees — it can also be used to compare temporary and contract workers to full-time employees.

Now that we’ve got that out of the way let’s look at how to calculate FTE.

Calculating FTE

In its most basic form, FTE is calculated by dividing the total number of hours worked by full-time employees by the number of hours worked by all employees.

However, this formula has a few variations, depending on what you want to include. For example, you can choose to include only paid hours or both paid and unpaid hours (such as overtime).

This calculation can be very confusing if you’re not used to it, so to make things as clear as possible, let’s look at an example for calculating the FTE of a single employee.

Example 1: Sarah

Let’s say that Sarah is a part-time employee who works 28 hours per week. Her company has a 5-day work week, and full-time employees work 8 hours daily.

Here are the facts you need:

  • Sarah works 28 hours per week
  • Full-time employees work 40 hours per week (5 days x 8 hours)

To calculate Sarah’s FTE, we need to divide her hours worked (28) by the number of hours worked by full-time employees (40). This gives us a figure of 0.7, which means that Sarah is equivalent to 0.7 FTEs.

The figure ‘0.7’ can be understood better by converting it to a percentage. Sarah’s FTE is 0.7, so she works 70 percent of a full-time work week.

Example 2: Whole Business

Now, let’s say you want to find out the total FTEs for your business. You have 15 part-time employees and 20 full-time employees. Here are the facts:

  • 5 of your part-time employees work 20 hours per week
  • 10 of your part-time employees work 25 hours per week
  • Your full-time employees all work 40 hours per week

To calculate the total FTEs for your business, you need to add up the hours worked by all employees, both full-time and part-time.

  • 5 employees x 20 hours = 100 hours
  • 10 employees x 25 hours = 250 hours
  • 20 employees x 40 hours = 800 hours
  • Total = 1150 hours

Next, you need to divide the total hours worked by all employees (1150) by the number of hours in a full-time work week (40). This gives you a figure of 29, meaning that your business has 29 FTEs.

This figure can be used in several different ways. For example, you could use it to calculate the staff you need to cover a certain number of hours or to compare the cost of part-time and full-time employees.

Now that we know what FTE is and how to calculate it, let’s look at some use cases in the business context.

Benefits of Calculating FTEs for Business Strategy

Understanding your workforce’s full-time equivalent (FTE) is not just a numerical game; it’s a strategic maneuver that offers many benefits. It helps to gauge the human resources capacity accurately and assists in making informed decisions for future planning and growth. Here are some of the critical benefits of calculating FTEs for business strategy:

Streamlining Workforce Management

  • Efficient Resource Allocation: Understanding FTEs helps determine whether a company has adequate staffing for its needs. This knowledge aids in optimizing the distribution of workload, ensuring balanced resource allocation.
  • Identification of Workforce Gaps: FTE calculation aids in identifying workforce gaps. It can highlight understaffed or overstaffed areas, enabling more strategic workforce planning.

Enhancing Business Planning and Budgeting

  • Accurate Budgeting: By understanding the FTE count, businesses can forecast their payroll costs more accurately, leading to better financial planning and budgeting.
  • Informing Business Strategy: FTE calculations can reveal trends and insights about workforce needs and utilization, which can inform strategic business decisions, such as scaling up or down.

Impact on Productivity and Efficiency

  • Productivity Analysis: FTEs provide a more precise measure of labor productivity than headcount alone. It allows for comparisons of output on a standardized basis, driving productivity enhancements.
  • Operational Efficiency: A clear understanding of FTE helps design more effective work schedules and reduce overtime costs, thus improving operational efficiency.

Driving Business Sustainability and Growth

  • Sustainability Analysis: FTE data can help analyze the sustainability of the business in terms of workforce capacity. It helps determine whether the current staffing level can support long-term business objectives.
  • Facilitating Growth Planning: As businesses look to expand, knowing their FTE can inform growth strategies. It provides valuable insights into the staffing resources needed to support expansion.

Business Use Cases for FTE

There are many ways that FTEs can be used in a business context, such as:

  • Product development: Workforce requirements for a new product can be estimated by calculating the FTEs required for the different tasks to be carried out, from designing and engineering to production and marketing.
  • Staffing: FTEs can be used to measure employee workload and as a basis for allocating resources.
  • Project management: FTEs can be used to track a project’s progress and calculate its cost.
  • Cost control: FTEs can help identify areas where costs can be reduced without affecting product or service quality.
  • Benchmarking: FTEs can be used to compare the efficiency of one company with another or to measure how well a department is performing.
  • Recruitment: by calculating the FTEs required for a particular role, a company can determine the number of staff it needs to hire.

Let’s run through a couple of use cases to give you an example of how FTEs can be used in business.

Use Case 1: Staff Replacement

Imagine you are a human capital manager who has lost four employees and needs to replace their hours. Two of these employees worked full-time (40 hours per week), employee three worked 20 hours per week, and employee four worked 15 hours per week.

Let’s run through the steps to calculate the FTEs that need to be replaced.

  • First, we need to calculate the total number of hours all employees work. This is done by adding the hours worked by full-time employees (40 + 40 = 80) and those worked by part-time employees (20 + 15 = 35). Together, these employees worked 125 hours per week.
  • Next, we must divide this by the regular full-time work week, which is 40 hours (5 days x 8 hours). The calculation would be 125/40 = 3.125.
  • Therefore, the number of FTEs you need to replace is 3.125 (you would probably round this up to 4).

In this scenario, the FTE gives you a more straightforward way of calculating the number of employees you need to replace, rather than calculating the total hours worked and then determining what percentage of that is full-time.

Use Case 2: Project Management

You are a project manager, and you are trying to make arrangements for an upcoming project. To get the project underway, you need to know how many hours it will take, and, therefore, how many people you will need.

You can calculate the FTEs required for the project by estimating how many hours each task will take and then adding them all up.

For example, imagine the project will involve designing a new website. The design phase might take 35 hours, the development phase might take 40 hours, and the testing phase might take 25 hours. This would mean that the total project would require 100 hours.

Divided by the standard 40-hour work week, this would equal 2.5 FTEs — so you know that you will need two full-time workers and one part-time worker or another combination of workers that adds up to 2.5 FTEs.

Now, it’s time to look at your project team. You might have a designer, a developer, and a tester on your team. If each of these workers works 40 hours per week, then you are already meeting the FTE requirement. However, if one works only 20 hours per week, you must bring in another part-time worker to complete the FTE requirement.

Use Case 3: Resource Adjustment

In this example, imagine you are tasked with reallocating resources within your department. A recent project took 20 hours less than anticipated, so you need to adjust your staffing levels accordingly.

Here are the facts:

  • The project was anticipated to take 120 hours
  • You had allocated 3 FTEs to this project
  • However, it only took 100 hours in total

As you can see, because the project only took 100 hours, you have one FTE left over. This tells you that, when allocating resources for future projects, you can reduce the number of FTEs by one and still have enough workforce to complete the project.

This is just one example of how FTEs can be used to adjust staffing levels — in reality; there are many other ways this could be done. For instance, you could reduce the number of hours each worker is allocated or bring in new workers to fill the shortfall.

As you can see, FTEs are a valuable tool for businesses of all sizes and can be used in various ways to improve efficiency and optimize resources.

Limitations of FTE Calculation

While the Full-Time Equivalent (FTE) metric offers invaluable insights into workforce dynamics and assists in strategic decision-making, it has limitations. Understanding these drawbacks is essential to ensure balanced and comprehensive human capital management.

  1. Oversimplification of workforce complexity: FTE calculation can potentially oversimplify the complexities of a diverse workforce, as it combines part-time, full-time, and temporary employees into a single measure. This can overlook unique individual contributions and capabilities.
  2. Lack of insight into employee engagement and performance: FTE doesn’t account for qualitative factors such as employee morale, engagement, or individual performance. It’s essential to use FTE alongside other performance metrics for a well-rounded workforce analysis.
  3. Potential misinterpretation: FTE figures can be misunderstood if not accurately interpreted. A high FTE count may not always signal overstaffing, just as a low FTE might not necessarily indicate understaffing. Understanding the business model and workforce structure is key to interpreting FTE data.
  4. Ignoring the effect of overtime: Typically, FTE calculations do not factor in overtime, which can lead to skewed labor inputs. Employees working significant overtime may still be represented as one FTE, despite contributing more hours than a standard full-time employee.
  5. Limited scope for workforce diversity: The simplicity of FTE calculations may sometimes undervalue the benefits of a diverse workforce that includes a mix of full-time and part-time employees, potentially masking crucial workforce nuances.

Best Time Tracking Tools for Calculating and Monitoring FTE

You can use a few different tools to calculate and monitor FTEs. Here, we’ve handpicked the best ones for you:

1. Day.io – Overall, the Best Tool for FTE Calculation

Day.io is a cloud-based time tracking and productivity tool that makes calculating FTEs for your business easy. It allows you to manage and monitor employee hours, generate detailed reports, and even set specific goals for your team. With Day.io, you can also compare the performance of different teams or projects over time and track progress against goals set by individual employees or the whole company.

Features

Pricing

  • Time & attendance tracking: $4 per user/month
  • Project time tracking: $6 per user/month

2. Desktime – Convenient Desktop Time Tracker with Pomodoro Feature

Desktime is a desktop time tracking and productivity app that makes it easy to monitor FTEs. It features the popular Pomodoro technique, which encourages users to focus on one task at a time for 25 minutes, then take a 5-minute break before starting the next task. Desktime also allows you to set hourly rates for each employee and track their performance over time.

Features

  • Real-time progress monitoring
  • Task management
  • Pomodoro technique to improve focus
  • Detailed timesheets and employee tracking
  • Integration with many popular project management tools 
  • Project billing & invoicing system 
  • Multi-language support

Pricing

  • Pro: $7 per user/month
  • Premium: $10 per user/month
  • Enterprise: $20 per user/month

3. Time Analytics – Quick and Easy Timesheet App with Productivity Insights

Time Analytics is an easy-to-use timesheet app that makes calculating FTEs effortless. It features a simple drag-and-drop interface, customizable reports, and productivity insights to help you optimize your team’s performance. With Time Analytics, you can also set up reminders for employees to submit their timesheets on time and get an overview of their hours worked.

Features

  • Intuitive dashboard with an easy learning curve
  • Real-time tracking of employee performance
  • Customizable reports and productivity insights 
  • Reminders for timesheet submission 
  • Integration with popular project management tools 
  • Project costing & billing system

Pricing

  • Starter: $4.99 per user/month
  • Optimum: $6.99 per user/month
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FTE Meaning: Final Words

In the landscape of business strategy, the Full-Time Equivalent (FTE) metric plays an essential role, offering critical insights into workforce dynamics. While it’s instrumental in decision-making and growth planning, it’s crucial to remember its limitations and use it with other performance metrics.

Day.io offers a comprehensive solution for convenient and accurate FTE calculation to aid in this process. By streamlining workforce management, Day.io ensures optimal leverage of your human capital, aligning it with your business objectives. So why wait? Sign up for Day.io today and redefine how you understand and manage your workforce.