If you want to run a business, or you already have one, two important things and skills you need to master are acronyms and math. Why? Because, if you don’t know about this stuff, how else are you going to know how to calculate 0.5 FTE? Or 85% of a workweek that lasts 35.5 hours? And what is PTO? And ALE? I bet you feel pretty stressed right now, your head must be hurting… But don’t worry, luckily we are here for you and in this article you will find the answers to all of your questions.
Let us begin by saying why all of this is SOOOO IMPORTANT… FTE is a useful measurement because it helps budget analysts and project managers estimate labor costs… Labor what??
Labor costs! Because, by understanding how many full-time workers a company needs to accomplish certain tasks and the amount of their approximate salaries, budget analysts and project managers can better forecast the funds they will need to continue the company's work or a given project for the next year.
And the million dollar question… WHAT IS FTE? WHAT THE HELL IS THAT?
FTE stands for Full-Time Equivalent and can also be called WTE - Whole Time Equivalent and can also be called… Just kidding, two acronyms are enough.
Your FTE employee is someone who works the entire workweek and his total working amount of hours are 2,800 hours per year, breaking down to 5 days a week, 8 hours per day. A typical 40h workweek is a term you are surely familiar with. Although in some cases, employees consider 37,5 hours a full-time work week, because they don’t include the 30 min mandatory daily break in the total amount.
However, not all employees work full time. Some are part-time workers, others only work during certain months of the year, others have flexible schedules, others work during one project, and so on. And this is precisely why this metric has been introduced, FTE is a unit of measure that helps you count the hours worked by all types of workers, and it is also used to reverse-engineer how many people you should hire when you plan a project or a campaign.
Outside of the business environment, FTE is also used to measure a student’s class load or involvement in a school project… It seems like we never leave school behind.
Okay, but… What is a full time equivalent employee then?
Considering that the FTE unit of measure is based on the total number of hours worked, it may not indicate the actual number of people working in a company. Here’s a quick guide of how full-time and part-time employees may equal 1 full-time equivalent employee:
- 1 full-time employee working 1 official full-time schedule = 1 full-time equivalent employee
- 2 part-time employees working exactly half of the company’s official full-time schedule = 1 full-time equivalent employee
- 4 part-time employees working exactly a quarter of the company’s official full-time schedule = 1 full-time equivalent employee
To track employee work hours and decide whether your employees are full-time equivalents, there are a lot of great tools for tracking teams.
Does this really have a purpose?
The answer is YES. Let’s say that you need to calculate the total amount of hours, time, and money required for your business to run successfully.. FTE is the answer, full time equivalent will help you do this.
It also enables you to do the math backward. If a project requires, idk 600 hours, and you only want to hire full-time employees, that means that you will need 15 weeks for one person to finish it, or 7,5 if two people are doing it, etc… Human resources are often using this metric to make the staffing decision for the entire company.
Also, several federal programs have different ways to calculate FTE, and these calculations are used to determine:
- Eligibility for the Paycheck Protection Program (PPP another acronym for your lis and a very important one for your business)
- Whether an employer is an Applicable Large Employer (ALE) for the fiscal year.
- And also for small business owners to see if they can apply for a tax credit in the amount of 50% of the employer-paid health care premiums.
Now let’s talk about other acronyms with numbers… FTE 100%. What is that?
An FTE 100% is a full-time employee, the one working all the 40h workweeks, the full-time workers or several people fulfilling the duties of 1 full-time position and is a standard measure that you will use to calculate the time, money, or employees required to finish a project. Like we mentioned, some employees count 37.5 to be the standard workweek, which is the number of hours actually worked when you exclude the breaks.
Sometimes one person can be your FTE 100%, or FTE 1.0, which is another way to call it. An FTE calculation for all employees in a company needs to be rounded down to the nearest whole number (usually, 1.0 FTE or greater).
On the other hand, the FTE for individual employees may be:
- 80% (0.8) FTE
- 75% (0.75) FTE
- 70% (0.7) FTE
- 50% (0.5) FTE
- Any other FTE equivalence of a shorter work schedule than 100% FTE
You can create various combinations, depending on the needs of your business.
So all of this info sounds great, but the big deal is how can you calculate the FTE.
Calculating your FTE is not that difficult. You just need to add the total amount of hours worked by all of your employees and divide it by 40h. The number you get needs to get rounded up to two decimals. And TA DA! That’s all the magic.
Do you want to calculate how much it is to hire employees abroad will actually cost you? There are several tools online called “employment calculators” to get an estimate about your overall costs for employees in different countries.
FTE has a lot of different uses and calculation methods depending on why you want to calculate it. It will help you plan a project or your work according to deadlines and your budget.
In conclusion, having accurate FTEs for all your employees will also help employers determine responsibilities towards them, their PTO rates, and whether the business is eligible for certain federal programs. Once you decide why you want to use FTE, identify the appropriate calculation method, and follow it through.