Human capital management is a key part of any business. When it comes to staffing, one of the most important metrics is the number of full-time equivalent employees, or FTEs. But what is the FTE meaning in business, and how can you calculate it? More importantly, why does it matter in the first place? In this article, we’ll answer all those questions and more.
Let’s start by taking a closer look at what FTE actually is.
FTE meaning: 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 take a look at how to calculate 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, there are a few variations on this formula, depending on what you want to include. For example, you can choose to include only paid hours, or you can include 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 per day.
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 that 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, which means that your business has a total of 29 FTEs.
This figure can be used in a number of different ways. For example, you could use it to calculate the amount of 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 take a look at some use-cases in the business context.
Business Use Cases for FTE
There are many ways that FTEs can be used in a business context, such as for:
- Product development: manpower 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 as a measure of employee workload and as a basis for allocating resources.
- Project management: FTEs can be used to track the progress of a project and to calculate its cost.
- Cost control: FTEs can help identify areas where costs can be reduced without affecting the quality of the product or service.
- 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 hours (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 worked by all employees. This is done by adding together the hours worked by full-time employees (40 + 40 = 80) and the hours worked by part-time employees (20 + 15 = 35). Together, these employees worked 125 hours per week.
- Next, we need to 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 simpler way of calculating the number of employees you need to replace, rather than trying to calculate the total hours worked and then working out 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. In order 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 be equal to 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 of them only works 20 hours per week, then you will need to bring in another part-time worker to meet the FTE requirement.
Use case 3: Resource adjustment
In this example, let’s imagine that you are tasked with re-allocating 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 manpower 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 that this could be done. For instance, you could reduce the number of hours that each worker is allocated, or you could 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 a variety of ways to improve efficiency and optimize resources.
FTE Meaning: Final Words
There are many ways that you can measure the people power and resources in your company, like tracking worked hours, or using a simple head count. In order to get a more accurate and nuanced understanding of your team’s human capital, however, you should use Full-Time Equivalents (FTE).
Hopefully, this article has helped you understand FTE meaning in business, how to calculate it, and why it’s an important metric. Start using it today for a more accurate view of your company’s human resources.