The meaning of FTE: a guide for HR professionals
Dive into our comprehensive guide on the meaning of FTE. Understand how accurately gauging FTEs can optimize staffing, predict budgets, and support employee retention – a must-read for every modern HR professional.
As an HR professional, you know that FTE (full-time equivalent) is an important metric for managing your workforce and forecasting budgets.
But what exactly does FTE mean, how is it calculated, and why does it matter? This article will demystify FTEs so you can leverage this metric strategically.
Contents
What does FTE mean in HR?
Full-time equivalent is the long version of FTE, meaning the number of full-time employees a company would have if all employees worked full-time. For example, if you have four employees who each work 30 hours per week, their total combined hours are 120. 120 hours divided by a 40 hour full-time work week equals three FTEs.
In other words, FTE allows companies to standardize headcount and measure workload capacity by converting part-time staff to a full-time basis.
This enables useful comparisons across teams and functions for organizational planning and analytics.
How is FTE calculated?
FTE is calculated by adding up the total number of hours worked by all employees and dividing that total by the number of hours in a full-time work week, which is typically 40 hours.
Let’s revisit the example above: if you have two employees who each work 20 hours per week, their total combined hours are 40. Forty hours divided by a 40-hour work week equals one FTE.
When tallying up hours worked, things like paid time off (PTO) and sick leave are included. However, external contractors and freelancers are generally not included in the FTE count.
Many HRIS softwares can automate FTE calculations by incorporating data on employee hours worked, absences, time-off calendars, and more.
Why FTE matters for HR
For HR professionals, understanding and monitoring FTEs is essential for several reasons:
1. Budgeting
FTEs are the essential data needed to accurately forecast and manage labor costs across the organization. Each FTE represents the fully loaded expense of having one full-time permanent employee on staff.
By multiplying the number of FTEs by the average cost per FTE, HR can predict total labor budget needs more precisely than just using headcount alone.
Tracking FTEs over time also allows HR to identify growing or decreasing expenditure on salary and benefits. Finance teams will also be interested – ånd revenue per FTE can also be calculated from this.
2. Staffing
Analyzing FTE data helps HR proactively identify the need to hire more staff or reduce hours. For example, if team productivity is declining while FTE levels remain flat, it may signal that more staff need to be onboarded to meet workload demands.
On the flip side, a spike in FTE levels without corresponding business growth may indicate a need to realign staffing plans and reduce hours.
Sudden changes or churn in FTE numbers can serve as an early warning for HR of underlying staffing problems or challenges.
3. Productivity
FTEs can be compared to revenue output and other productivity metrics to assess workload balance across the organization.
Employee productivity can be measured to determine how much each full-time equivalent generates for the business.
Trends in this ratio can show which teams are operating efficiently and which may be over or understaffed relative to output.
4. Compliance
Many laws and regulations related to benefits eligibility, overtime pay, and other workforce standards depend on whether an employee is classified as full-time or part-time based on FTE status.
HR must track FTEs correctly to remain compliant and avoid penalties. For example, the Affordable Care Act in the United States requires applicable large employers to provide health insurance to employees working an average of 30+ hours (0.75 FTE).
5. Culture
The ratio of full-time to part-time employees impacts company culture, engagement, and retention. Full-timers often identify more closely with company mission and values.
Declining FTE percentages may indicate problems retaining full-time staff. HR can analyze FTE ratios to ensure the workforce alignment supports desired cultural goals.
FTE trends and statistics
The FTE landscape is being shaped by two trends.
- Hours worked in the US: The average FTE worker in the United States worked 34.4 hours per week in June 2023
- Part-time workforce in the US: About 17% of the US-based workforce worked part-time (less than 35 hours/week) in 2022
In summary, understanding the meaning of FTEs is a key competency for HR professionals today. Knowing how to accurately calculate and strategically apply FTE analysis helps optimize staffing, forecast budgets, align talent strategy to business goals, and support employee retention.
Stay on top of FTE trends and leverage HRIS tools to master this essential workforce metric.