What is FTE? Why Everything You've Heard is Wrong

What is FTE?

You've likely come across various definitions and explanations, but have you ever considered that much of what you've heard might be misleading or incomplete?

Especially if you're an employer, you need to get these things right.

Read more about FTE, how to calculate it, and whether you should implement it in your hiring strategy – or not.

What is FTE?

Full-Time Equivalent (FTE) is a unit that measures the workload of an employee, comparing it to a full-time worker, usually expressed as the number of hours worked relative to a standard full-time schedule.

How is FTE calculated?

Calculating FTE involves converting the hours worked by part-time employees into the equivalent number of full-time employees.

To determine your company's FTE, follow these steps for FTE calculation:

Calculate total hours worked: Add the actual hours worked by all part-time employees over a given period (e.g., previous calendar year).
Determine full-time hours: Establish the standard full-time workweek hours (e.g., 40 hours per week) and multiply by the number of weeks in the year to get annual full-time hours.
Convert to FTE: Divide the total part-time hours by the annual full-time hours. This gives the number of full-time equivalents for part-time workers.
Combine with full-time employees: Add the number of full-time employees to the FTE of part-time employees for the total FTE value.

For example, if five part-time employees worked a total of 4,000 hours in a year, and the full-time workweek is 40 hours, you would calculate their FTE as follows: 4,000 total part-time hours ÷ 2,080 full-time annual hours (40 hours × 52 weeks) = 1.92 FTE.

Adding this to, say, ten full-time employees gives you a total FTE of 11.92.

This method helps businesses assess labor costs, manage staffing, and ensure ACA compliance.

Pros and cons of FTE

Pros

Simplifies workforce planning: With FTE calculations, companies can easily determine the total number of full-time equivalent employees, making it straightforward to plan for labor needs and manage staffing levels.
Compliance with ACA: Accurate FTE calculations help businesses comply with the Affordable Care Act by ensuring they meet the required thresholds for offering health insurance to full-time employees.
Cost efficiency: FTE provides a clear picture of labor costs by converting part-time employee hours into full-time equivalents, enabling businesses to better manage their budgets and control expenses.
Flexibility in staffing: By understanding the FTE value, companies can adjust their workforce composition, balancing between full-time positions and part-time workers to meet operational demands efficiently.
Consistent measurement: FTE has a standardized way to measure employee total hours and annual hours worked, so keeping consistency in reporting and analysis across different departments and employee types is easy.

Cons:

Complex calculations: FTE calculations can be complex and time-consuming, especially for businesses with varied employee schedules and a high number of part-time workers.
Potential for inaccuracy: Errors in tracking actual hours worked or annual hours can lead to inaccurate FTE values, affecting workforce planning and ACA compliance.
Limited flexibility for individual needs: Sole proprietorships or small businesses may find FTE calculations too rigid, as they often need to accommodate unique employee arrangements and roles that don’t fit neatly into FTE metrics.
Overlooks employee productivity: FTE focuses on hours worked rather than the actual productivity of employees, potentially leading to inefficiencies if full-time and part-time employees have different performance levels.
Administrative Burden: Regularly updating and maintaining accurate records of employee hours and performing FTE calculations can add an administrative burden, particularly for companies with a high turnover rate or many part-time positions.

FTE in the eyes of employers: a practical case study

Company overview: ABC Retail, a medium-sized business with a mix of full-time and part-time workers, was struggling to manage labor costs. The company employs five full-time employees and ten part-time workers.

Challenge: ABC Retail needed to understand the true cost of their workforce to make better budgeting decisions and comply with the Affordable Care Act (ACA). They were unsure how to balance their staffing between full-time positions and part-time workers efficiently.

Solution: The company decided to implement FTE calculations to gain a clearer picture of their labor costs. They started by calculating the total hours worked by all employees.

Example calculation:

Full-time employees: Each full-time employee works 40 hours per week, totaling 2,080 hours annually (40 hours × 52 weeks).
Part-time workers: The ten part-time workers each worked an average of 20 hours per week, totaling 10,400 hours annually (20 hours × 52 weeks × 10 workers).

FTE Calculation:

Full-time FTE: 5 full-time employees = 5 FTE.
Part-time FTE: Total part-time hours (10,400) divided by full-time annual hours (2,080) = 5 FTE.

Total FTE: 5 (full-time FTE) + 5 (part-time FTE) = 10 FTE.

Outcome: By using FTE, ABC Retail could see they effectively had 10 full-time equivalent employees. This insight allowed them to better allocate labor budget, streamline staffing, and comply with ACA rules.

As a result, the company reduced unnecessary overtime and improved overall operational efficiency, leading to a 15% reduction in labor costs within six months.

Myth Busting: common misconceptions about FTE

Myth 1: "Only full-time employees count towards FTE"

Many employers believe that FTE calculations only involve full-time workers. However, this is incorrect. FTE considers both full-time and part-time workers.

To calculate FTE accurately, you must include the hours worked by all employee types.

For instance, if a company employs five employees, comprising both full-time and part-time workers, all their hours must be included in the FTE calculation.

Myth 2: "Part-time employees are only half an employee"

A common misconception is that each part-time worker is simply considered half of a full-time employee. This is misleading. The FTE value of a part-time worker is determined by the actual hours they work, not an arbitrary half.

For example, one part-time employee working 20 hours a week would be 0.5 FTE, while another working 10 hours a week would be 0.25 FTE. This precise calculation ensures an accurate representation of workforce capacity.

Myth 3: "Full time equivalent calculations are only for large businesses"

Some sole proprietorships and small businesses think FTE calculations don't apply to them. This is false. FTE is valuable for businesses of all sizes, including those with only a few employees.

For example, a small business with a single full-time employee and a part-time worker can benefit from FTE calculations to understand its total workforce capacity and manage labor costs properly.

By understanding and utilizing FTE, small businesses can make informed decisions about staffing and resource allocation.

Unrubble can help with FTE in your company

Unrubble is a tool that makes managing Full-Time Equivalents (FTE) easier.

It tracks actual hours worked by all employees, whether they are part-time workers or full-time employees.

With Unrubble, you can simply divide the total part-time hours by the annual hours worked by a full-time employee (usually 40 hours per week). This helps in calculating FTEs accurately.

Unrubble helps employers determine the FTE value for each employee type, ensuring ACA compliance and better labor cost management.

By adding the total FTE, companies can see the full workforce capacity, helping in planning and budgeting. Unrubble makes it easy to calculate and manage your full-time equivalents, saving time and reducing errors.

Check out Unrubble to streamline your FTE calculations and improve your workforce management!

Leverage the full-time employee system

Understanding FTE (Full-Time Equivalent) is essential for managing your workforce the right way.

By calculating FTEs, companies can accurately assess labor expenses, comply with regulations, and optimize staffing.

Remember, both full-time and part-time workers are considered employees in FTE calculations.

Whether you run a large corporation or a sole proprietorship, knowing your total FTE can help you make better business decisions.

Now it's your turn to start calculating FTEs and improve your workforce management. Good luck!

FAQ

What does FTE mean in work?

FTE, or Full-Time Equivalent, is a unit that compares an employee's workload to a full-time position, helping businesses assess total workforce capacity.

What is the FTE for 37.5 hours?

To find the FTE for a 37.5-hour workweek, simply divide 37.5 by the standard 40 hours. The result is 0.9375 FTE, representing nearly one full-time employee.