Glossary of Human Resources Management and Employee Benefit Terms
FTE stands for “full-time equivalent,” which is the number of hours worked by a single full-time employee over any period. Organizations can convert part-time and contract employee hours into FTE units by adding together part-time and contract employee hours and dividing the total by the FTE. This provides a convenient way to show how many “whole” full-time employees are on the company payroll.
For example, at a typical U.S. company, FTE would likely adhere to the standard 40-hour workweek: eight hours per day, five days per week. So, if two part-time employees each work four hours per day for ten days apiece during a two-week pay period, their 40-hour total represents one FTE on the company’s payroll for that pay period.
Versus using headcount, converting the hours worked by a multi-status workforce into FTEs makes it easier for an organization to analyze performance, both internally as well as across the rest of their industry. Comparing FTEs to revenue, overhead, net profit, and other performance metrics makes it easier to understand per-employee costs and output in a large organization, and allows the business to compare their own numbers to other companies that employ primarily full-time employees or that use a similar simplified headcount. Many companies also use FTEs to compare the overall performance of part-time staff to that of actual full-time employees in terms of hiring, training, turnover, and other costs. Comparing the two groups over time allows an organization to find opportunities for improved efficiency; for example, in the timing of seasonal warehouse hiring, or by comparing the real net costs of hiring additional part-time employees to the more visible cost of overtime pay for existing staff.