Full-Time Equivalent (FTE) Definition

How to Calculate FTEs?

To calculate the full-time equivalent employee following steps are to be followed –

Step 1: Firstly, convert the number of hours that the company’s part-time employees work on a full-time basis. This is required because the full-time employee’s work will be used to calculate the final count of the FTE.

The formula to calculate the hours worked by part-time employees is as follows:

Hours Worked by Part-Time Employees = Number of Part-Time Employees in Company * Total Weekly Hours * Total Number of Weeks.

Step 2: After calculating the hours worked by the part-time employees in step 1, hours worked by the full-time employees of the company during the period will be calculated.

The formula to calculate the hours worked by full-time employees is as follows:

Hours Worked by Full-Time Employees = Number of Full-Time Employees in Company * Total Weekly Hours * Total Number of Weeks.

Step 3: After calculating the hours worked by the full-time employees, the total hours worked will be calculated by combining hours worked by part-time employees (as calculated in step 1) and hours worked by full-time employees (as calculated in step 2)

The formula to calculate the total hours worked in the company is as follows:

Total Hours Worked = Hours worked by Part-Time Employees + Hours Worked by Full-Time Employees.

Step 4: Lastly, the full-time equivalent will be calculated by dividing the total hours as calculated in step 3 by the total hours in the period.

The formula to calculate the full-time equivalent (FTE) is as follows:

FTE per year = Total Hours Worked during a Year/ Total Working Hours per Year

FTE per Month = Total Hours Worked during a Month / Total Working Hours per Month

FTE per Week = Total Hours Worked during a Week / Total Working Hours per Week

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Example of Full-Time Equivalent

Let’s take an example.

Suppose a company Mobi Incorporation, wants to calculate its full-time equivalent per year (FTE per year). During the year, the company hired two part-time employees who worked 20 hours each per week for 50 weeks and three part-time employees who worked 18 hours each per week for 40 weeks. Also, the company has three full-time employees. Calculate the full-time equivalent per year of the company for the mentioned period?

Solution:

Step by step calculation of the full-time equivalent per year is provided as below-

Step 1: Converting the number of hours which are worked by the part-time employee in the company into a full-time basis using the below-mentioned formula:

  • Hours which are worked by part-time employee = (22050)+(31840) = 4160 Hours

Step 2: Calculation of the hours worked by full-time employees.

  • Hours worked by full time employees = 3 * 40 * 52 = 6240 Hours

Where,

  • Total weekly hours are calculated considering 8 hours and five days in a week, i.e., 8 * 5 =40 hours.Total number of the weeks in a year = 52 weeks

Step 3: Calculation of the total hours worked:

  • Total Hours worked = 4,160 Hours + 6,240 Hours = 10400 Hours

Step 4: Calculation of the FTE per year.

  • Total working hours per year is calculated considering 8 hours, five days a week, and 52 weeks in a year = 8 * 5 * 52 = 2,080 hours.FTE per year = 10,400 Hours / 2,080 Hours = 5 FTEsTherefore, Mobi Incorporation’s full-time equivalent (FTE) is 5 FTEs.

Importance of Calculating FTEs

The calculation of FTE is important in resource management and project management, especially when the decisions related to the employment of the staff are to be taken, as it helps to calculate the total number of personnel required for completion of the work in the available period. Also, FTE helps estimate the total labor costLabor CostCost of labor is the remuneration paid in the form of wages and salaries to the employees. The allowances are sub-divided broadly into two categories- direct labor involved in the manufacturing process and indirect labor pertaining to all other processes.read more that is to be incurred during the completion of the project. Moreover, in the cases of companies with a large number of part-time employees, the FTE helps to know how many part-time employees are equal to full-time employees.

Conclusion

FTE (full-time equivalent) is the unit of measurement that measures the ratio that represents the hours worked by an individual employee within a week, generally from Monday to Friday. It is used in the projects to analyze the requirement of staff and the cost of staffing as in case of a project when the permanent employee is not required you can use employee 1-2 extra staff for that particular project only. After completing the project, you can remove them without any negative effects of the termination of an employee.

This has been a guide to Full-time Equivalent and its meaning. Here we discuss how to Calculate FTE along with examples and its importance. You may learn more about financing from the following articles –

  • Direct Labor CostsBackflush CostingCost ClassificationCost Allocation