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FTE is essential for understanding employee hours and resource allocation. It plays a key role in budgeting, benefits administration, and legal compliance. Full-time equivalent helps forecast workforce needs, ensures legal compliance, and may even impact tax credits. It delves into the complexities of employee workload assessment and its impact on organizational efficiency.This blog is a comprehensive guide to Full-Time Equivalent (FTE), a vital metric in workforce management. The blog aims to demystify FTE and explore its significance beyond mere numbers. In this blog, we will cover FTE basics and its financial implications, making it a valuable resource for experts in workforce management.
Understanding Full-Time Equivalent (FTE)
Full-time Equivalent or FTE is a metric used in different industries and sectors to measure the workload and resource allocation in an organization. It measures the full-time equivalent employee hours and finds the right number of employees an organization needs. This approach offers valuable insights into an organization’s staffing, budgeting, and salary calculation.
It sets bars for a full-time employee’s work for instance, an employee should work for 10 hours in a day which means they will work for 40 hours per week. This is a useful measure to simplify workforce planning and facilitate accurate budget forecasting.
Professionals in different fields use this versatile formula for business analysis and project management, relying on FTE to assess workload and find associated labor costs. FTE is sometimes also referred to as the work-year equivalent (WYE).
The HR department can also benefit from FTE to calculate the total working hours and salaries of employees. For instance, an employee working half the hours of a full-time worker is considered as 0.5 FTE, which corresponds to half of a full-time salary.
It is also instrumental in departmental resource allocation, enabling management and HR to assess and determine the number of FTE required for various tasks and projects based on the workload.
Method to Calculate FTE
The different steps to calculate Full-time Equivalent in an organization are:
List the Employees and the Hours They Work
List down the number of total employees including their names and the number of hours they work per week. Ensure that you exclude the paid and sick leaves. Keep in mind to exclude 1099 contractors as they are not considered full-time employees.
Define the Number of Working Hours for Full-time Employees
Find the number of hours a full-time employee works per week. In general, a full-time employee is expected to work 40 hours per week. Anyone working below this average time is not considered to be a full-time employee.
Calculate Annual Working Hours
After calculating the weekly hours, the next step is to find out the average working hours by a full-time employee in a year. This can be easily found by multiplying the weekly working hours by the number of weeks in a year. For instance, there are 52 weeks annually and the number of working hours in a week is 40 so, multiply 52 by 40 to calculate the annual working hours for full-time employees.
Find the Full-time FTEs
Calculate the total working hours of all the full-time employees in a year.
Find the Part-time FTEs
Calculate the total working hours of all the part-time employees in a year.
Calculate the Sum of Full-time Employees Time and Part-time Employees
Find the sum of the total working hours of all full-time employees and the total working hours of all part-time employees.
Calculate the Total FTE
For calculating the total FTE, we need to add the number of FTEs worked by a full-time employee to the part-time FTE.
Formula to Calculate FTE:
- Weekly FTE (Full-time equivalent) = Total Weekly Worked Hours/ Total Weekly Working Hours
- Monthly FTE (Full-time equivalent)= Total Monthly Worked Hours/ Total Monthly Working Hours
- Annual FTE (Full-time equivalent)= Total Worked Annual Hours/ Total Annual Working Hours
Uses of Full-Time Equivalent for Organizations
Having discussed what FTE is and how to calculate it, let us now find the different uses of FTEs in present businesses. We have listed the key benefits of using FTE in the following section:
Assigning Departments
Today, multiple businesses are using FTEs to deploy departments to their employees as per the budgets. The department-wise allocation of employees depends on the type of work and the level of work necessary for each department.
FTF helps in determining the accurate number of full-time employees required for different tasks and deploys employee positions accordingly.
Both the human resource department and management should collaborate to identify the part-time and full-time job roles in organizations. This can be complete by studying the job role. This is possible after understanding the job role, studying the rules and regulations that organizations need to follow, and classifying positions as per the financial advantage.
One job opening is equal to one full-time equivalent (FTE) but this is not true for all situations. Some part-time employees who share a job can make one FTE together. Such jobs do not require full-time employees.
Allocating and Managing Projects
Companies take projects as per the availability of the workforce and their capacity to handle projects. They also consider how much an individual can handle. The number of projects varies from organization to organization and from industry to industry. For example, in a marketing agency, the same team can handle multiple projects simultaneously. However, this is not similar for the developers.
Organizations identify the project requirements and estimate the number of FTEs required accordingly to ensure higher productivity. This is how most organizations determine the number of projects they can manage at a time.
This is also a useful method to determine an individual’s capacity and efforts on different projects.
The method of FTE calculation is also helpful in identifying the bandwidth. It also helps in matching and determining future demand.
Today, many organizations are using FTEs to baseline their projects and project schedules so that they can track employee performance.
The best employee time tracking software is also essential for today’s organizations to plan project schedules and track individual performance.
Managing Budgets
The CTC of an individual, i.e. the Cost to the Company is different. It depends on the designation, individual’s role, and experience. Mainly experienced employees have higher CTC in comparison to the freshers. Experienced employees are also expected to deliver more in less time.
Companies need to find the number of employees while considering their work efficiency and abilities to ensure effective project management.
In the FTE method, the hiring managers develop a better understanding of the type of employees, not exceeding their budgets. The same method is used once the candidate is onboard and inducted to decide the projects they will be working on and their bandwidth.
This method is useful for hiring managers in adjusting their hiring processes and predicting budgets, and delivery dates. DeskTrack, an effective project management tool can also help in determining project costs.
Identifying Capacities
As already discussed, the FTE is a useful method to calculate role-based allocation in organizations. For example, by calculating FTE for an employee from a call center, employers can find how many calls an individual telecaller can make per day. This helps to determine the number of staff members required, their ideal working hours, and salaries.
Who Must Use the Full-Time Equivalent?
Although FTE is a useful tool to help organizations determine the accurate amount of human capital for different projects, certain industries can seek more benefits from utilizing this method than others.
Some of the popular industries that can have more benefits from using the FTE method are the ones with long-term projects. For instance, engineering firms, software and application development companies, construction firms, and many similar industries with long-term projects.
This method helps such organizations determine the capabilities and knowledge of their existing staff members. Identify the number of employees that need to be hired or outsourced.
This method helps in estimating projects by unifying human capital building proper plans for managing projects and ensuring timely delivery.
Other than using the FTE method, companies can also deploy different employee monitoring software and best productivity monitoring software to estimate project deliveries.
What is ACA-Compliant FTE?
The full form of ACA is the Affordable Care Act (ACA). it necessitates that every employer with more than 50 employees must ensure ACA-compliant benefits to its employees. With the method of calculating FTE, an organization can find out if it needs to comply with ACA benefits or not.
ACA considers 30 hours weekly as full-time. Organizations must comply with this definition, no matter how you define full-time employment in your company policies. This determines employees working 30 hours or more per week as full-time employees or one FTE.
With these instructions, if your organization’s total FTE is 50 or more, you need to give medical coverage and other benefits to your employees.
Final Thoughts
FTE or full-time equivalent helps companies to know the exact number of hours an employee needs to work. This method is also helpful to identify the cost of completing a project, configuring the ideal number of employees required for the project delivery and deciding the timeframe for projects.
This is an ideal smart method for today’s organizations to manage time and costs while working on different projects at the same time.
