What it is
Full Time Equivalent (FTE) is NOT headcount. Some people in your business may have only worked for part of the year or are part time. In these cases, the full time equivalent is less than 1.
Also see our post on revenue per employee benchmark calculation
How it’s calculated
FTE Benchmark is calculated as:
Number of hours worked by an employee for a period of interest / Number of hours worked by a full-time staff member for the same period
For example, first determine the number of hours worked by a full-time employee for the period of time you are interested in. A full-time employee may work 40 hours per week, which is five 8-hour days. In a full year their leave allowance might be 4 weeks annual leave and 10 days sick leave, so 52 minus 6 weeks = 46 working weeks. 46 times 40 working hours per week = 1840 hours per year.
To determine the FTE for a person who worked 500 hours in the 12 months ending 30 June of the applicable year and for that position type, the FTE is 500/1840 = 0.28 FTE.
Another way to determine the FTE is based on how many days a week a person works. If an employee works 3 full days per week, the FTE is 3 working days / 5 weekdays= 0.6 FTE
How it’s used
It is important to make a distinction between headcount and FTEs because whereas headcount tallies the number of people within the company, FTE converts that number into a measure of all the work that company is paying for – regardless of headcount. This can then be used to more accurately calculate employee productivity and other metrics.
FTE is also necessary to establish like-for-like benchmark comparisons, where evaluating a business against many key performance indicators based on headcount could become inflated and therefore would become meaningless.
Want to see how your business compares to others? Find out more about our benchmarking report.
Are you an Accountant or Business Advisor? Fill out the below form for a FREE TRIAL of the Benchmark Suite.