Full Time Equivalent (FTE)

What a full time equivalent is

A full time equivalent (المكافئ للدوام الكامل), abbreviated to FTE, is a unit of measurement that converts working hours into a number of full time posts. Its purpose is to make the size of a workforce comparable, whatever the working patterns of the people in it.

The unit starts from hours rather than from people. A team can be made up of employees who work the full schedule, employees who work half of it and employees who work a quarter of it. Counted as people, each of them is one. Counted in full time equivalents, each of them is the share of a full time post that their hours represent, and the shares are then added together into a single figure for the team.

How a full time equivalent is calculated

The number of hours an employee works in a period is divided by the full time hours the organisation has adopted for the same period. Both figures cover one and the same period: the hours worked in a month are divided by the full time hours of that month, and the hours worked in a year by the full time hours of that year.

The result places each employee on a scale on which a full time post is one:

• An employee who works full time counts as 1.0 full time equivalent.
• An employee who works half of the full time hours counts as 0.5 full time equivalent.
• Four employees, each of whom works a quarter of the full time hours, count as 1.0 full time equivalent between them, because four quarters make one full time post.

The third case shows why the unit is described as an equivalent. Four people who each work a quarter of the schedule supply, between them, the hours of one person who works all of it. In people they are four. In full time equivalents they are one.

The calculation works only if the full time hours in the denominator carry a single definition across the whole organisation. If one department divides by one figure for full time hours and another department divides by a different figure, the two results are expressed in different units even though both are called full time equivalents. They can then neither be added together into a total for the organisation nor compared with each other.

A worked full time equivalent example

Take a department with ten employees. Six of them work full time, three work half time, and one works a quarter of the full time hours.

• The six employees who work full time count as 1.0 each, which gives 6.
• The three employees who work half time count as 0.5 each, which gives 3 × 0.5 = 1.5.
• The employee who works a quarter of the full time hours counts as 0.25.

Counted in people, the department has a headcount of ten. Its full time equivalent is 6 + 1.5 + 0.25 = 7.75.

That leaves a gap of 10 minus 7.75, which is 2.25, between the two figures. It comes entirely from the four employees who work less than the full schedule: as people they count as four, and as full time equivalents they count as 1.5 + 0.25 = 1.75. The six full time employees count the same way under both measures, as six.

Why headcount is not enough without a full time equivalent

Headcount answers the question “how many people do we have?”. A full time equivalent answers a different question: “how much working capacity do we have?”. The two questions do not have the same answer whenever some employees work less than the full schedule.

Two departments with the same headcount can differ considerably in working capacity if the mix of working patterns in them differs. One department of ten in which everyone works full time and another department of ten in which some employees work part time have the same number of people. They do not have the same number of hours to give to the work.

Comparing the two departments by the number of people in them is therefore misleading. The comparison shows two equal departments where the hours worked are not equal. Comparing them in full time equivalents shows the difference in capacity that the count of people conceals, because each employee is counted by the share of a full time post that their hours represent.

Where a full time equivalent is used

A full time equivalent can be put to four uses:

• Workforce planning. It allows the need for staff to be estimated in units of working capacity rather than in people. Estimating the need in full time equivalents states the need as a number of full time posts rather than as a number of people.
• Allocating employee costs. It provides a basis for distributing the cost of employees across departments or projects.
• Calculating indicators against a real size. It gives a denominator that reflects the real size of the workforce, so that an indicator is calculated in relation to working capacity rather than to a count of people. Revenue per FTE is an indicator of this kind.
• Comparing on a uniform basis. It allows one department to be compared with another, or one period with another, on the same basis. Where the mix of full time and part time work differs between the two departments or the two periods, the full time equivalent removes that difference from the comparison.

Every one of these uses rests on the single definition of full time hours set out under the calculation. If that definition differs from one part of the organisation to another, the figures produced cannot be added together or compared, and the flaw spoils every indicator built on the full time equivalent in HR analytics.

What a full time equivalent measures

A full time equivalent measures time, not output. It records how many hours of work are available, expressed in full time posts. It does not record what those hours produce.

Two full time equivalents in two different roles do not necessarily produce equal value. They stand for the same number of hours, and that is all the measure records. Whatever the hours in each role yield, the full time equivalent counts both roles the same way, because its only input is time.

This is an explanation of the concept, not legal advice.