What is Full Time Equivalent and How to Calculate It
Knowing the employees' count and the number of hours they need to work is essential information every organization needs. Whether you’re a startup or an established company, this is critical for budgeting, compensation planning, and legal compliance.
According to research, there are 134.15 million full time employees in the US. This further proves the importance of knowing what full time equivalent or FTE means and how learning to calculate it benefits your company to the fullest.
Compensation Software utilizes global market data to help your company effectively forecast labor costs. It also considers FTE for company size and different locations for geography to produce more accurate data sets.
What does full time equivalent mean?
The full time equivalent or FTE is a figure that measures the total number of full time employees working in a company. It sums up the number of hours worked by all kinds of employees including full time and part time workers.
Calculating the full time equivalent employees also help businesses make better decisions when it comes to budgeting labor costs, measuring productivity, and allocating resources. Below are some benefits of knowing what is FTE in jobs:
Accurate budgeting: FTEs can help streamline your company’s budget calculation. The full time equivalent figure helps establish a timeline that can estimate labor costs, forecast revenues, and even predict profits per employee.
Determining workload: Computing the FTE can help your company decide how many full time and part time employees you need to hire. It also determines the number of hours they need to work, which helps formulate the budget and work schedule needed.
Influence company growth: Knowing and tracking your organization’s full time equivalent can help identify workforce trends and predict your future staffing needs. This allows you to strategically plan for possible company growth and expansion.
Support your company’s growth and expansion by utilizing the Compensation Software. Make pay decisions with confidence using enhanced data integrations that analyze market, company, and employee data.
Full time employee vs part time employee
To understand the concept of full time equivalent better, let us first differentiate full time employees from part time employees. Simply put—the main difference is the employee's scheduled hours for a workweek.
However, the FTE week varies from one company to another. Therefore, the Bureau of Labor Statistics categorized it into the following:
Full time: More than 35 hours a week
Part time: Less than 35 hours a week
On the other hand, the Internal Revenue Service (IRS) established that a full time employee work for at least 30 hours per week or 130 hours per month under the Affordable Care Act (ACA).
It’s also important to note that these two types of employees receive different sets of compensation and privileges. So as a company, you should be able to determine how much manpower you need to get the job done.
How to calculate FTE hours worked
To obtain the value of the full time equivalent, you just have to determine the total number of hours worked by your employees and your company’s FTE week or full time workweek. Therefore, we shall be following the formula below:
FTE = Hours worked / FTE week
For a company that considers 35 hours as its FTE week, two employees with 25 and 35 hours worked would have the following full time equivalent respectively:
Employee 1: FTE = 25 hours/35 hours = 0.714
Employee 2: FTE = 35 hours/35 hours = 1.0
To calculate the full time equivalent on a larger scale, here’s a step-by-step process you can follow:
List all your employees and their respective hours worked.
Determine the company’s FTE week.
Compute the annual hours worked. To compute this, you multiply the actual total hours worked by 52. (there are 52 weeks in 1 year).
Calculate the total FTE.
Calculating the FTE and using its figure side by side with the Compensation Software will help your company drastically improve its compensation practices. Its Job Range Wizard feature will also ensure that employee salaries and pay ranges are market-competitive all the time.
FTE calculation: Practical example
Let’s have a practical example to help you master the full time equivalent calculation. Company AAA has a total of 8 employees.
4 full time employees with 40-hour workweeks
4 part time employees working with 25-hour workweeks
| Employee 1 | 40 |
| Employee 2 | 40 |
| Employee 3 | 40 |
| Employee 4 | 40 |
| Employee 5 | 25 |
| Employee 6 | 25 |
| Employee 7 | 25 |
| Employee 8 | 25 |
Company AAA established that its FTE week is 40 full time hours. Now, to calculate the annual hours worked, just sum up the total actual hours worked of all the employees and multiply it by 52:
Total actual hours worked = 40 + 40 + 40 + 40 + 25 + 25 + 25 + 25 = 260
Annual hours worked = 260x52 = 13,520
FTE year = 40x52 = 2,080
To obtain the FTE, just divided the annual hours worked by the FTE year:
Total FTE = 13,520/2,080 = 6.5 FTE
Therefore, the total full time equivalent of Company AAA is 6.5. This means that the company’s 8 employees add up to a total of 6.5 full time workers.
FAQs
The following are some common questions about FTE or full time equivalent:
Is 0.5, 0.75, or 0.8 considered FTE?
A full time employee must have 1 FTE. Having an FTE of 0.5, 0.75, or 0.8 tells us that an employee only works part time.
If a company has a workweek of 40 hours, then employees with FTEs of 0.5, 0.75, and 0.8 should work a total of 20, 30, and 32 hours per week, respectively.
Does FTE affect salary?
Yes, an employee with 1 FTE definitely has a higher salary compared to an employee with a 0.5 FTE. If full time workers in the company ABC have a salary of $100,000, we can assume that a part time employee with 0.5 FTE should only earn $50,000.
However, it’s also important to note that an employee’s salary can be affected by several different factors. Utilizing the Compensation Software can help you build a strong compensation framework for your business.
Is FTE weekly or monthly?
The number of hours that the FTE represents depends on the company’s laws and policies. It could be any given period such as daily, weekly, monthly, or even yearly.
However, several organizations calculate the FTE weekly for the number of hours worked and the FTE week.
Is FTE different from headcount?
Yes. The FTE represents the total number of employees working full time hours worked in a company.
The headcount, on the other hand, simply counts every employee working for the entire organization. Regardless of if they’re full time or part time employees, everyone still counts as 1.
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