What does FTE mean?
FTE represents the number of full-time employees, based on total hours worked and regardless of employment type. The concept uses the hours worked instead of the number of people employed to better estimate labor costs, prepare budgets and distribute assignments.
For example, if full-time employees work 40 hours per week, four employees working 10 hours per week would be equivalent to one full-time team member, or 1.0 FTE. If your company has full- and part-time workers, calculating FTE is generally more accurate than counting employees, as it helps assess the number of hours the team dedicates to weekly tasks. It can also help determine how many people to schedule for a shift or whether you need to hire additional workers.
Why is FTE important?
This standardization can help you assess whether you have the resources needed to meet your company’s goals. For example, project managers (PMs) may use FTE to evaluate workload and labor costs. If a project requires 100 hours of work, calculating FTE helps determine whether your team has enough collective hours available, not just enough people. If the FTE calculation falls below this figure, the PM might add a team member or adjust the project timeline.
HR departments generally use FTE to standardize the working hours and salaries of part-time employees. They may also use it for compliance purposes, such as Affordable Care Act (ACA) reporting or benefits eligibility. For example, half-time workers are 0.5 FTE because they work half the hours of full-time employees. Someone classified as 0.5 FTE might receive half the salary of a 1.0 FTE in the same role.
Calculating FTE also makes it easier to assign employees to departments based on workload. Once a department manager reviews their needs and current staffing levels, they can request additional FTEs to help with time-sensitive projects.
FTE in different industries
By using FTE as a key metric, organizations in most industries can make data-driven decisions that support operational efficiency and legal compliance. For example, in healthcare, FTE can help determine the number of nurses or doctors needed to provide quality patient care while staying within budget.
In contrast, a university could use FTE to determine the staffing required for a semester’s courses.
Benefits of FTE
Using the full-time equivalent metric offers a range of benefits for organizations. One major advantage is the ability to conduct more accurate performance reviews, as FTE helps set expectations for output relative to hours worked, potentially making productivity assessments fairer for part-time workers.
FTE also simplifies the planning of new projects by providing a clear picture of workforce capacity, making it easier to estimate labor costs and allocate resources where they’re needed most.
It also supports better control of payroll expenses and budgeting, enabling companies to match staffing levels to customer demand and avoid unnecessary labor costs. By calculating FTE, organizations can make informed decisions about hiring, scheduling and resource allocation, ultimately leading to more efficient operations and improved financial performance.
How to calculate FTE
Organizations typically need to calculate FTE to determine workforce size and comply with certain regulations. Follow these steps to calculate FTE for an annual count. This process results in the total number of FTEs for the organization.
Step 1: Determine the standard number of work hours for a full-time employee
Many organizations use a 40-hour workweek, but it depends on your location and policies. For example, you may use 32 if your company offers a four-day workweek. Multiply by 52 to get the standard number of full-time hours worked per year.
Step 2: Add up employee work hours for the period (one year)
Include full- and part-time employees to ensure an accurate result.
Step 3: Divide the total number of work hours by your standard full-time hours
Divide the total number of work hours calculated in the second step by the annual number of work hours calculated in the first step.
Example of full-time equivalent calculation
This sample calculation can help you better understand the FTE meaning. Consider using this calculation to determine the number of employees needed to meet organizational goals.
1. Determine the standard number of work hours for a full-time employee
If your company uses a 40-hour workweek, multiply 40 by 52 to get the standard number of full-time hours worked each year (2,080). Other companies may adjust if they use standard schedules such as 35 hours per week.
2. Create a list of employees and the number of hours worked during the year
Assume your company has five types of employees:
- Full-time manager (40 hours per week)
- Full-time administrative assistant (40 hours per week)
- Part-time IT specialist (20 hours per week)
- Part-time marketing assistant (10 hours per week)
- Full-time salesperson (40 hours per week)
The manager, administrative assistant and salesperson each work 40 hours per week (2,080 per year). Multiply 2,080 by three to calculate the annual number of hours worked by all three employees. In this example, you get 6,240.
Now, calculate the number of hours worked by the IT specialist and the marketing assistant. The IT specialist works 20 hours per week, which totals 1,040 hours for the year, and the marketing assistant works 10 hours per week. When you multiply by 52, you get 520 annual work hours.
To calculate the total number of hours worked during the year, add 6,240 + 1,040 + 520. In one year, your employees work 7,800 hours.
3. Divide the total number of work hours by your standard full-time hours.
The last step is to divide 7,800 (the total number of annual work hours) by 2,080 (your standard full-time hours). This results in an FTE of 3.75.
In this example, the company has a headcount of 5 employees but only has an FTE of 3.75. This makes a difference when distributing assignments or determining whether you need to hire additional team members.
