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Full-Time Equivalent FTE: Definition, Meaning, Calculation, Formula

Posted by Test on July 31, 2020

fte meaning finance

Focusing too much on FTE can also make it harder to balance people’s schedules and keep them happy with their work. For most businesses, the goal is to minimize the expenses and necessary workload while considering that shrinking too far can ultimately damage the business. For example, based on experience, you may know that running a marketing campaign for your company will cost you about 4.5 FTE while it’s in progress. Keep in mind, however, that the specific strategies that may be most useful are depending on the organization and the industry.

What does 2.5 FTE mean?

Assuming a full-time employee works 40 hours per week, your full time equivalent calculation is 100 hours divided by 40 hours, or 2.5 FTE.

If 0.75 FTE is considered full-time in a company, such employees may qualify to apply for the Public Service Loan Forgiveness (PSLF) program, as stated above. With so many employment intricacies, it’s crucial you clearly distinguish between each type of employee, especially if you’re managing a large global team. Globalization Partners’ global employment platform streamlines worker classification and ensures your company is compliant in key areas like employment contact generation and payroll.

How to Calculate Full Time Equivalent (FTE)?

The amount of hours a full-time employee works for a company is referred to as an FTE. The goal here is to count how many hours are worked rather than counting the number of employees. Employers can use an average number of FTE employees for each pay period falling within a month.

fte meaning finance

The baseline in order to qualify as 1.0 unit of a full-time employee is set at 40 hours, so a part-time employee that worked 20 hours would be marked as a 0.5 FTE. Within this method, the employee is credited with 40 hours for each week when payment was due (including PTO). So, 75 is the number of hours needed per day to finish the said 600-hour project. However, it will be up to you to decide how many people you’ll want to employ to carry this out and what type of employment you will offer them.

The Benefits of Using FTE?

For example, a pizza shop employs 5 workers who work the following average working hours excluding employees who are on leave, paid time off and sick leave. Full-time Employees are workers who typically work for hours a week and are employed on a permanent basis. Along with regular wage, they get benefits such as health care, vacation pay, pension, and other requirements as per the prevailing law.

  • In this example, imagine you are tasked with reallocating resources within your department.
  • When you are calculating full-time equivalent (FTE) employees, you should look at how many hours each person works and how many people work in a certain role or department.
  • You can contrast your staffing level with your competitors in your industry after converting part-time meters to FTEs.
  • This is critical for organizations to understand since it affects workforce requirements, budgeting, and compliance with labor laws.
  • She can often be found testing and writing about apps meant to enhance the workflow of freelancers, remote workers, and regular employees.

Overtime is sometimes necessary for companies to get projects done on time, but excessive overtime usually indicates that a company has too few employees. Outside of those required by law, benefits are mainly a way to attract and retain employees by offering them something outside their salary. High-quality employees are more productive than lower-quality ones, so they can often earn more for the company despite their higher pay. For example, if you’re hiring four employees at 0.25 FTE, you have to expend four times as many resources to onboard and train them. That may not be a massive deal at some companies, but it’s significantly more work hours before everyone operates at the right level.

How to Calculate FTE?

You’ll use all the information from each category to create and orchestrate strategic plans with clearer insight into your daily operations. You can repeat this formula weekly, monthly, quarterly, or annually for more specific insights. The design phase might take 35 hours, the development phase might take 40 hours, and the testing phase might take 25 hours. You are a project manager, and you are trying to make arrangements for an upcoming project. To get the project underway, you need to know how many hours it will take, and, therefore, how many people you will need.

fte meaning finance

This way, you will be able to determine the number of full-time equivalent workers in your company even when you have part-time workers on-site. For large employers, calculating FTEs is necessary in order to determine if they are subject to the employer shared responsibility provisions of the Affordable Care Act (ACA). For small employers, calculating FTEs can help them determine if they are eligible for a tax credit worth 50% of their paid health care premiums.

Full-Time Equivalent (FTE): Definition, Meaning, Calculation, Formula

You can also use an FTE calculation to determine the appropriate pay for part-time workers. To identify the FTE for a specific part-time position, just divide the number of hours worked by the employee by the number of hours considered for a full-time worker. To calculate the total FTE, add the number of FTEs worked by full-time employees (1 FTE for each full-time worker) to the part-time FTE you calculated in step five. To identify the FTE of part-time employees, divide the total hours worked by part-time employees by the annual hours worked by one full-time employee (i.e., 2,080 hours). Next, add the total hours worked by full-time employees and the total part-time hours worked by part-time employees.

  • 0.5 FTE is typically used for positions such as project managers, supervisors, overheads, and strategists, where it isn’t necessary to be present for the entirety of the workweek, as the job can be done in fewer hours.
  • Larger employees (50 FTE or more) typically use 30 hours as full-time because that’s the threshold for some benefits.
  • You can determine how many hours your project needs, and after calculating the equivalent EFT of that hour, you can hire the number of people the project requires to be completed.
  • FTE can be useful in finance for tracking employee working hours and payroll, and when trying to formulate the allotted budget for new hires or interns.
  • We’ll also show you how to perform various calculations that involve FTEs, and provide you with automatic calculators that will help make the process easier.
  • For example, you may want to do this when you want to make an FTE offer to a new employee during a job interview.

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