What is Full Time Equivalent (FTE)?
Full Time Equivalent (FTE) refers to the unit of measurement equivalent to an individual – worker or student – one unit of a work or school day, applicable in a variety of contexts. In most cases, full time equivalents measure an employee or student and/or their workload.
For example, 1.0 is typically the FTE representation of an individual’s full work/school day, while 0.5 would indicate half of the original figure, generally in reference to the workday. In reference to an individual, 0.5 usually refers to the fact that the worker renders less than a full day of work or the student attends less than a full day of classes.
FTEs in the Workplace
FTEs are most widely used by companies to determine their employees’ workload, with the perspective of trying to determine how many part-time employees and the hours they work add up to the same number of hours worked by full-time employees. It is critical for accounting purposes and determining wages, and for calculating the company’s expenses when paying its workers.
Yearly, a company generally considers an FTE to be valued at 2,080 hours. To delve further into the matter, let’s look at how FTEs are calculated.
The breakdown for an average, full-time worker and their hours on an annual basis is calculated by assuming the worker follows an 8-hour workday and works five days out of the week:
8 hours per day x 5 days per week = 40 hours
The figure is then multiplied by the number of weeks worked every year:
40 hours per week x 52 weeks per year = 2,080 hours
This is how a company, on average, calculates the average yearly number of hours that a full-time employee works.
The Importance of Determining FTEs
For a business, specifically those with a large number of part-time workers, converting worked hours into FTEs is important in helping the company know how many full-time employees the part-time workers are equal to.
In the end, is important for a company to determine FTEs because it allows it to gain a better understanding of the effectiveness and usefulness of its part-time workers, based on the amount of work done and perhaps, most importantly, because part-time workers are generally paid less and don’t receive the same benefits that must be offered to full-time employees. All the abovementioned factors end up costing the company something and affect its bottom line.
CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep learning and advancing your career, the additional CFI resources below will be useful: