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 40 hours a week will have an FTE of 1. The number of hours worked depends on the company and the industry and is 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-hour classwork per week and the student only completes 15, this will account for 0.5 FTE.

FTE is simply a measure of time that allows the comparison between 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 - 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 following example will help you understand the concept of FTE in terms of total hours worked for all employees and the time they worked. Then, 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:

 

The calculation of FTE salary for part-time employees based on the above example will represent the FTE hours divided by the salary they earn. 

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 / (Part-Time Hours/Full-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?

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. 

Sectors that have 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.

In addition, it helps firms manage their 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 also gives an idea of the company's size.

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.

Calculating FTEs is also required for tax purposes. Small companies can benefit from small business healthcare tax credits if the company doesn’t have more than 10 FTEs whose salaries are not more than $25,400 a year. If a company has more than 10 FTEs, the tax credits may be reduced. The IRS demands the FTE numbers at the end of each fiscal year.

Why Measure FTE?

FTE is often used when calculating the staffing needs for organizations. For example, it can describe the number of hours that employees work or study or the number of individuals needed to fill a full-time position. 

For example, if an organization’s FTE is 40 hours per week, it would require two part-time workers (20 hours) to fulfill the same hour requirements as one worker working 40 hours over five days. 

This would allow the company to better use its time and resources by having multiple people work at specific times throughout the day rather than just one person working for all eight hours. This will depend on the specific needs of the firm and the requirements of the task.

Additionally, 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 at full-time employment in terms of lab research and depending on the contract's specifications.

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. Additionally, 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 to make better planning, resourcing, and capacity decisions. Comparing the full-time equivalent to these other methods helps understand when one metric can be better than another.

A popular organizational metric is the headcount. Headcount measures simply the total of all workers, both part-time and full-time. The headcount doesn’t provide any details on the hours worked, unlike the FTE.

Another term is pro-rata. It defines the salary a part-time worker earns compared to the FTE. The pro-rata salary is the compensation that an employee gets for part-time work. It can help calculate the FTE, as shown in an earlier example. 

The FTE provides a more detailed representation than the headcount and the salary pro-rata, which are not without their merits. 

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’s 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 the context of 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 is used to determine how much money a company should allocate for paying 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 principle 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 1.15 (40÷35).

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

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 per month. 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, which means that they are only paid for the hours they have worked. 

A specific example is a fee-for-service (FFS), which can often be used in research and development projects. The 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, methodology,, and processes. These tasks will demand more focus and commitment, and hence, 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 enrollment.

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 a 40-hour full-time week, the college would have 1.5 FTEs.

Schools also use this metric to calculate their yearly numbers of full-time teachers for licensure purposes.

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.  

• Student FTE - For example, if a student needs 15 credits to graduate, all the units they take will be divided by 15 until they have achieved the total. If a student has three units in the first year, this will be 0.2 FTE = 3 / 15. 
• 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 15 if we take the example above where 15 is the FTE.  

Both student and course FTEs help the establishment manage and allocate resources, including course room allocation, examine and review course offerings, manage student numbers, whether they are majors or not, and apply 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 40 hours a week for 2,080 hours per year. 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 the total number of straight-time hours, excluding overtime and holiday, divided by total compensable hours for the year. 

Overtime and terminal leave are not included in the FTE. Annual and sick leave and compensatory time off are included in the hours worked for the purposes of defining an FTE. However, when filling positions, these factors are excluded from calculating worked hours.

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 usually not advised as internal resources should be used to achieve the tasks. 

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

Overall, FTEs estimates are presented by each government agency 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 on a one-on-one basis. 

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 will replace them with another full-time equivalent. The program operates on a one-in-one-out principle.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Retained Earnings
• Fraud Triangle
• Cost of Goods Manufactured (COGM)
• Marginal Cost Formula
• Accounts Receivable Turnover Ratio