In today’s business world, it is routine for companies to employ people in non-traditional ways. Perhaps you run a seasonal business that doesn’t rely on full-time employees. Maybe it makes more sense for you to have part-time employees in order to cut down on the cost of providing health insurance. Perhaps your company has several key employees who are needed for overtime hours during the busiest periods. This is becoming increasingly normal, as the traditional 40 hour work week is fading from view. Still, it can be helpful to understand precisely what quantity of work you are hiring with all of those different employees. One way figure this out is by calculating full time equivalent (FTE) hours.
What are FTE hours?
FTE hours are units of measure that help a company chronicle all of the work it is paying for. It is a unit of productivity that is helpful in determining whether more or less hiring needs to be done to take on more projects in the future. When a company understands its FTE, it can make important calculations on that basis. For instance, if a company has been working on 10 projects while having 400 FTE hours each week, then it will know that it needs close to 500 FTE hours if it’s going to take on 12 equivalent projects the next week.
FTE hours become critical in that situation because it may not be necessary to just hire standard full-time workers. It might make more sense to hire a combination of part-time experts, full-time standard bearers, and people who are willing to dig in with overtime hours on certain projects. When a company knows its FTE hours, it can apportion its hiring budget according to its particular needs.
How should one calculate FTE hours?
The methodology behind FTE hours is relatively easy to understand. First, one must start with the idea that the standard full-time employee works 40 hours. This means that one FTE is equal to 40 hours per week. From there, the company just has to add up all of the hours it is paying for and divide that number by 40. An example may help to illustrate this principle more clearly.
Imagine a company has two full-time employees working 40 hours each per week. It also employs three part-time employees working 20 hours each. There is another full-time employee who works 60 hours each week. The company has six employees in this example, and they combine to work 200 hours. The company would take 200 and divide it by 40. This gives the company five FTE. The calculation means that the company has the equivalent of five full-time employees, even though it gets the benefit of six different people working on projects.
Calculating FTE hours can allow a company to know just how much it is getting for its employment dollars. Some companies may favor a smaller workforce working more hours. Some may want more employees working fewer hours. Knowing FTE can help a company make that decision.