Full Time Equivalent (FTE)

What Is Full Time Equivalent (FTE)?

Full-time equivalent (FTE), also called whole-time equivalent (WTE), is a statistical measure that counts the number of hours that a full-time employee works.

The FTE is a unit of measure for an employee or a student’s workload. The hours worked per day, week, or month are compared to what these same units are for full-time employment, and the subsequent calculations reflect them.

Typically, a full-time employed person who works a standard 40 hours per week will have an FTE of 1, but full-time hours can vary by industry and region.

The number of hours worked depends on the company and the industry, as specified in the worker’s contract. If another person works 30 hours per week, they will have an FTE of 0.75 (30/40).

The full-time equivalent measure can also be applied to a student’s classes. For example, if the establishment requires 30 hours of classwork per week and the student only completes 15, this will account for 0.5 FTE.

FTE is simply a measure of time that compares full-time and part-time workers, including contractors. It also gives a clear idea of balancing the permanent and temporary workforce, whether an increase or a decrease is necessary to complete a project within a timeframe.

How to Calculate FTE?

To calculate the full-time equivalent, you need to know:

• The number of employees: Consider both full-time and part-time. The working hours of part-time workers and the duration of their service will be compared to the FTE.
• The hours per period benchmark: Depending on the working hours per week, the FTE hours can be calculated for the week, month, quarter, and year. Usually, there are 2,080 working hours per year: 40 hours per week * 52 weeks. 
• The actual hours worked for that period 

You can also calculate a full-time equivalent for both hours and salary. The total hours that both full and part-time employees worked is divided by the full-time equivalent hours per employee. Below is an example to help you understand this better:

Part-Time workers FTE = 6000/2080 = 2.88 = 3

Full-Time workers FTE = 41600/2080 = 20

Total FTE = Part-Time workers FTE + Full-Time workers FTE = 20 + 3

FTE per year = 23

Calculating the FTE salary for part-time employees based on the above example involves dividing the actual salary by the corresponding FTE value. 

For a part-time worker with 30 hours a week over 25 weeks and a paycheck of $20,000, their FTE salary can be calculated as: 

FTE Salary = Salary / FTE
or
FTE Salary = Salary / (Full-Time Hours/Part-Time Hours)

where,

The FTE for a part-time worker is

0.75 = 30 / 40

According to the formula, the FTE salary will be

$26,700 = $20,000 / 0.75

Full-time equivalent enables managers to compare productivity between full and part-time workers, identify areas for improvement, and plan resources effectively depending on the project or the seasonality of work.

Why Is FTE Used?

Some of the reasons are:

1. Workforce Planning and Resource Allocation: FTE is an important measure for companies as it helps them estimate the resources they need, both in terms of workforce and time, to complete a project. In addition, it enables project managers to execute accurate planning, allocate and distribute resources, and manage staff capacity. 
2. Seasonal Resource Management: Sectors with peak seasonalities, such as peak shopping for retailers and tourist influx for the catering industry, could benefit from the FTE - it will allow them to assign resources where needed, manage productivity, and achieve efficiencies.
3. Cost Management and Budgeting: It helps firms manage costs, make budgeting provisions, and comply with regulations. For example, if a company has over 50 FTEs, it will be obliged to provide health insurance. Failure to do so may result in a fine for noncompliance. Another advantage of FTE is that it gives an idea of the company’s size.
4. Feedback and Evaluation Tool: The full-time equivalent can also be used as a technique for feedback and evaluation so that the productivity of part-time workers is estimated and compared to that of their full-time counterparts based on which necessary adjustments can be made. The FTE also provides real-time data to managers and allows decision-makers to stay compliant with the rules.
5. Tax Compliance and Credits: Calculating FTEs is also required for tax purposes. Small companies may be eligible for small business healthcare tax credits if the company has 10 or fewer FTEs and their salaries do not exceed $25,400 a year. The tax credits may be reduced if a company has more than 10 FTEs. The IRS demands the FTE numbers at the end of each fiscal year.

Why Measure FTE?

We measure FTE because:

1. Staffing Needs and Resource Optimization: FTE is often used when calculating the staffing needs of organizations. For example, it can describe the number of hours employees work or study or the number of individuals needed to fill a full-time position.
2. Resource Allocation Example: For example, if an organization’s FTE is 40 hours per week, two part-time workers (20 hours) would be required to fulfill the same hour requirements as one worker working 40 hours over five days. This would allow the company to use its time and resources better s by having multiple people work at specific times throughout the day rather than just one person working all eight hours. This will depend on the firm's specific needs and the task's requirements.
3. Applicability in Research and Development: FTE can also be used when assessing research and development efforts. For example, if a researcher spends ten hours in labs in a week, that individual would be considered full-time employment in terms of lab research, depending on the contract’s specifications.
4. Evaluation of Part-Time Workers: Measuring FTE allows employers to evaluate the hours and the work of part-time workers, not least because part-time employees are paid less and don’t necessarily enjoy the same benefits as their full-time colleagues.
5. Revenue Benchmarking and Employee Profitability: FTE could also be used to establish revenue benchmarking and employee profitability.

How Does FTE Compare Against Other Employment Metrics? 

Companies use several corporate staff metrics for better planning, resourcing, and capacity decisions. Comparing the full-time equivalent to these other methods helps understand when one metric can be better.

Some of the metrics are:

1. Headcount: A popular organizational metric is the headcount. Headcount measures simply the total of all workers, both part-time and full-time. Unlike the FTE, the headcount doesn’t provide any details on the hours worked.
2. Pro-rata: Another term is pro-rata. It defines a part-time worker’s salary in proportion to their full-time counterparts. The pro-rata salary is an employee’s compensation for part-time work and can be used in various contexts. It can help calculate the FTE, as shown in an earlier example.
3. Fixed-term contracts (FTC): A full-time worker is generally in a more advantageous position when compared to a fixed-term contractor. Fixed-term contracts (FTC) are contracts for temporary roles. A contractor doesn’t enjoy the benefits of a permanent employee, such as a bonus or company subsidies and discounts. However, they earn higher wages than full-time employees. A contractor’s hours will be compared against the FTE to determine output, productivity, and efficiency.

FTE in Research and Development (R&D)

In research and development, FTE is a unit of measurement for determining how many hours a researcher has been employed to work on a project. This determines how much money a company should allocate to pay the researcher.

The FTE in research and development can be calculated based on either:

• Hours worked on an R&D project: If an individual spends 40% of their time on research and development per year, they will have 0.4 FTE
• Official engagement based on prescribed working hours: If an R&D employee works solely on research and development over 11 months, their FTE will be 0.9 (11/12)

The FTE is the principal R&D personnel measure that allows comparison on an international level. It also measures the true output of R&D.

For example, if a company requires employees to work at least 35 hours per week, they would be considered full-time. However, if this individual has been working on research and development for 40 hours per week for two weeks, their FTE would be 1.14 (40/35).

This measurement method is often used when deciding how much to pay employees based on their wages or salary. 

Example

For example, if an employee’s salary was $30 per hour and the individual worked 40 hours per week, their salary would be $1,200 monthly. However, if the employee worked 30 hours and was paid $30 per hour per this wage agreement, they would only make $900 because their hourly rate doesn’t change.

Their salary is pro-rata, meaning they are only paid for their work hours. 

A specific example is a fee-for-service (FFS), often used in research and development projects. Fee-for-service is favored over FTE when the project requires less intensive development work. 

On the other hand, FTE is used for complex and intensive projects that may require different or reinvented frameworks, methodologies, and processes. These tasks will demand more focus and commitment; full-time employees are best placed to provide the solutions.

The fee-for-service is also common in the healthcare and medical professions. 

FTE in Teaching and Learning

FTE is used in teaching and learning contexts to measure the total time spent on education or training. It can be used for both teachers and students. It is the hours worked weekly for teachers, while for students, it concerns credit hours and course workload.

Depending on the country, teachers could work different hours, but usually, they will be between 30 and 40 hours, with overtime if required. The FTE in teaching also takes into consideration public and school holidays.

For example, if a college employs two lecturers who work 20 hours per week (equivalent to 40 hours per week when added together), the college can count these lecturers as having 0.5 FTE each.

Consequently, if the same college employs six lecturers who work 10 hours per week, and based on the standard full-time working hours in that context, the college would have 1.5 FTEs.

Student and course enrollments can also be calculated as an FTE. However, depending on the program, such as medical or legal, and the level, for example, undergraduate or not, the student will need to have a certain number of credits to graduate.  

The calculation would be like:

• Student FTE - For example, if a student needs 15 credits to graduate, the FTE calculation would be the total credit hours taken divided by the standard credit hours for a full-time workload.
• Course FTE - The course FTE is another useful metric calculated as the number of students enrolled in the course multiplied by the credit hours for the course and divided by the standard credit hours for a full-time workload.

Both student and course FTEs help the establishment manage and allocate resources, including course room allocation, examining and reviewing course offerings, managing student numbers, whether they are majors or not, and applying for funding.

FTE in Government

The term “full-time equivalent” is often used to calculate government employees. However, the number of FTEs in a government agency will depend on the project’s requirements that are being carried out, its timeframe, and budget allocations or restrictions. 

The U.S. government FTE is commonly based on a standard 40 hours a week, totaling 2,080 hours per year, although variations may exist depending on specific job roles and schedules.

The pay period is bi-weekly and spans over 26 weeks. The 26 bi-weekly pay periods cover 52 weeks.

A full-time equivalent in government employment, as defined by section 85 established by the U.S. President’s Office of Management and Budget (OMB), is calculated as:

Total number of straight-time hours (excluding overtime and holiday)/ total compensable hours for the year

Here,

• Overtime and terminal leave are not included in the FTE
• Annual and sick leave and compensatory time off are part of the total compensable hours for the year but are excluded when calculating worked hours for defining an FTE

However, these factors are excluded from calculating worked hours when filling positions.

Government FTE Management and Budget Compliance

FTEs in government agencies aren’t necessarily capped; however, the manager must justify the number of FTEs, and it needs to be compliant with regulation and budget requirements. 

FTE levels are monitored and reviewed, and their estimates are submitted and accounted for in the budget for the next year.

Outsourcing workload to contractors, also called conversion, is generally considered carefully, and internal resources are preferred, though decisions depend on factors such as cost-effectiveness and task complexity. 

Conversion to contractors is necessary if this has a clear cost-benefit to the government. Not strictly governmental projects may be converted to contractors, but this is subject to approval.

Each government agency presents FTE estimates during the annual budget planning. FTEs must comply with applicable laws and the budget allocated to each agency. In the event of voluntary separation incentive proposals, also called buy-outs, FTEs are adjusted one-on-one. 

The voluntary separation incentive is a government program that pays departing employees a lump sum of cash.

If a departing FTE worker takes the program, the agency may replace them with another full-time equivalent based on its operational requirements and restructuring plans. The program operates on a one-in-one-out principle.

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