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May 12, 2022

What is Full Time Equivalent (FTE)

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The full-time equivalent is an arithmetic figure for resource management. It specifies the number of fictitious full-time positions with the same work capacity for several real positions with different time models. The full-time equivalent makes it possible to compare the employee capacity of other companies that employ a worker with differently structured full-time and part-time models. All personnel involved in work in the reporting period are recalculated as full-time equivalents. It includes both full-time employees of the enterprise and those not in the accounting staff who are involved in work according to contracts and have accruals from the wage fund.

What is Full-Time Equivalent (FTE)?

Full-time equivalent (also known as FTE for short) is a unit of measure founded on the total hours worked that indicates how many hours are full-time. It is the equivalent time of employees employed by a particular company during the financial year or who need to be hired to carry out the project.

To figure out the number of full-time equivalent employees, the total number of hours worked is compared to the number of hours in the company’s official weekly full-time schedule (for instance, 40 hours per week). If the standard working time per week in a company according to state norms is 40 hours, and one works 40 hours and the other two work 20 hours each (all three total 80 hours), this is equivalent to two so-called full-time equivalents.

Why should you calculate full-time equivalents?

You calculate Full-Time Equivalents to be able to convert the hours worked by part-time employees into the work capacity of fictitious full-time employees. If your company employs numerous part-time employees, it is essential and valuable to convert their working hours into FTEs. It creates the basis for further analyses, such as determining the personnel requirements in the event of restructuring or planned capacity expansion or reduction.

Things to pay attention to

FTEs are not actual workers or managers resulting from a typical headcount. So not full-time employees, but the mathematical equivalent, the time value of work done by a full-time employee.

In this way, employers are required to convert part-time employees to work performed by a full-time employee. It means that the FTE value remains constant over time until you adjust the company’s current working hours and thus change the calculation base.

What is Full Time Equivalent (FTE)

What is the purpose of FTE?

Different federal programs use various ways of calculating FTE, and these calculations are used to determine:

  • eligibility of the paycheck protection program;
  • whether the employer is an eligible large employer;
  • is a small business eligible to apply for a 50% tax credit on employer-paid health insurance premiums.

FTE is likewise used to figure out the number of accumulation hours per employee.

Furthermore, project managers and budget analysts also use the FTE measure to estimate how many hours (i.e., full-time schedules) it will take to complete a project and whether that project will necessitate full-time or part-time employees (and how many each). They use it to calculate the labor costs of the project’s expected workload and determine the number of funds needed to complete the project.

Subtleties of the phenomenon

The average headcount of all personnel in full-time equivalent was used to determine the intermediate level of wages for the whole enterprise (per one employee). When calculating this average, it should be taken into account that the personnel involved in the reporting period included both full-time employees of the enterprise and those who were not in the accounting staff and were engaged in work under special contracts.

The methodology of calculating this indicator provided for the inclusion, along with full-time employees of the accounting staff, of specific categories of employees of the non-registered team (who were also involved in work and received wages in the reporting period) by conditionally recalculating them into the equivalent of employment of one employee — full time or the average salary of one employee.

Assessment of total labor

Total full-time-equivalent labor costs are determined based on labor costs for all types of work, including additional work and production for own use, normalized to notional full-time equivalent workers. The calculation of the indicator of labor costs is based on an assessment of the number of jobs and the average working time per job.

The assessment of total labor costs in the equivalent of full employment for the production of goods and services in all types of work is carried out based on the balance of labor costs.

The assessment of labor costs for the production of goods and services in all types of work is carried out according to three leading indicators:

  • the number of jobs (positions);
  • the number of hours worked;
  • full-time equivalent.

The calculation of these indicators is interrelated and is based on an assessment of the number of jobs and the average working time per job for each type of work.

Efficient use of the equivalent

Indicators of labor productivity characterize the efficiency of the use of labor resources. Labor productivity is the ability to produce a certain amount of products (works, services) per unit of working time or spend a certain amount of time creating a unit of products (results, services). Labor productivity growth is determined by an increase in output due to savings in working time or a decrease in the number of workers engaged in producing products (works, services).

The indicator of labor productivity in general terms is the ratio of production volume and labor costs: Labor productivity = Production volume/Labor costs. The production volume can be understood as the output of products, services, or gross value added. Both of these indicators are presented in monetary terms.

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Author: Charles Lutwidge

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