There is a widespread sentiment that most health care systems globally face acute shortage and maldistribution of primary care physicians. These could be attributed to factors such as an increase in the population demanding primary health care services and reductions in the physicians to population ratio. These factors have direct detrimental effects on health care administration and management. Fortunately, emerging concepts such as full-time equivalent (FTE) have been pivotal in managing and administering the health care system because the number of required human resources can be determined. It also estimates workloads, labor costs, and budgets and simplifies work schedules. Further to this, FTE aids in understanding the direct costs associated with overtime and predicting the number of part-time and full-time employees. This research paper provides a detailed description of FTE, how and why FTE is appropriate in calculating staffing costs.
Meaning of Fulltime Equivalent
Fulltime equivalent (FTE) is a unit of measurement equivalent to a student or an employee and/or their workload. In a workplace, FTE is the total number of hours worked compared with a company’s time schedule for work in a week (usually 40 hours a week). Outside the business context, FTE measures student participation in a class workload in a term or semester (Hidayanti & Sumaryono, 2021). Companies use FTE measurements to determine employees’ workloads with the intent of determining if part-time workers work the equivalent hours as employees on full-time (Wu, 2021). Therefore, FTE measurements provide calculations of a company’s expenses on wages, thus critical for accounting purposes.
In human resource management (HRM), FTE’s measurements are used by administrators and budget analysts to determine costs of labor and approximate wages. Finding the number of required full- and part-time workers provides a better forecast of the required resources necessary for a specific project. Employers use FTEs to allocate employees in various departments based on budget constraints or requirements. Employers also use these calculations to identify the number of positions for part-timers and full-time employees based on the job description (Wu, 2021). A company may gain a financial advantage depending on the stipulated policies and laws. It is attributed to tons of flexibility in these calculations, which allows companies to apply them in staffing within headcount and FTE salary limits.
Hours Included in Full-time Equivalent
Yearly, a company’s FTE is valued at 2,080 hours. Breaking this down implies that an employee works eight hours a day for five days a week. Thus, 8 hours in a day x five working days out of the week = 40 hours per week. In a year, there are 52 weeks, such that 40 hours weekly x 52 weeks annually = 2,080 hours. In some companies, 37.5 hours in a week constitute a full-time schedule. In such companies, the FTE is valued at 1, 950 hours annually. However, both instances count as 1.0 FTE or 100% (Turnea, 2020). The FTE calculations for workers in a company are rounded to the nearest whole number.
Full-time Equivalent Position
A FTE position meets the requirements of a full-time position constituted by two or more part-time positions equivalent to 1.0 FTE. Conventionally, an FTE position is a monitoring or budgeting unit that equates the total of full-time spaces, part-time spaces, a turnover or vacancy factor, and other relevant modifications. Ideally, one FTE position is equated to 2, 080 hours in a fiscal year (Wu, 2021). The number of FTE positions is computed by considering the total regular working hours annually completed by employees in their positions, deducting hours by turnover and vacancy factor, and dividing the result by 2,080. The number of FTE positions is given as follows;
While calculating the number of FTE position levels, the number of positions exceeding the FTE positions annually compensates for times when FTE positions are below the authorized number of FTE positions.
Determining Costs Using Fulltime Equivalent
The FTE calculations are pretty straightforward when forecasting the specific needs of a business. It is commonly used for managing or budgeting personnel resources for particular projects. Essentially, FTE’s provides costs for personnel, time, and money to guide decisions regarding staffing. It is a pivotal element of accounting that help determine hours of services, full-time and part-time employee wages, and the company’s expenses (Turnea, 2020). Suppose a company’s project requires 240 hours to be completed. For such an organization, the total hours (240) are divided by 8, giving 30 full-time workers required to complete the 250-hour task. Considering the requirements on the needs of the tasks, a mix of part-time, contractors and full-time workers or only full-time workers with a total FTE of 3. The flexibility in FTEs allows employers to plan workloads and resources for part- and full-time staff. It helps the employer determine whether new hires or extra help is required from temporary workers, or perhaps the part-timers can put in extra effort and work more hours on a specific project.
An example is a restaurant that requires more hands on the deck during summer and busy holidays; thus, a larger headcount is required for such big projects. Conveniently, FTEs come in handy with time off policies and health insurance covers. Using FTE helps the company determine costs and whether it provides appropriate health insurance to avoid penalties. The company uses the concept of converting the work by the part-time workers and comparing it with that accomplished by full-time workers to project labor costs (Wu, 2021). These costs also help small businesses decide whether or not they are paying too much or too little in project costs. Therefore, the primary purpose of FTE is to calculate project costs in terms of personnel, money, and time. Furthermore, it provides insights on how an organization can standardize salaries, determine total expenses incurred in wages, and arrange human resources (Turnea, 2020). Through FTE calculations, managers can understand the overall costs of overtime before deciding whether overtime is cost-effective or opening up new part-time and full-time positions.
0.5 Full-time Equivalent
Since FTE is the number of hours worked in a week, an employee who works for all the office hours in a week (40 hours) is a 1.0 FTE employee and earns 1.0 of the full-time salary. A part-time employee working 4 hours daily for five days weekly equals 0.5 FTE and earns 0.5 of the full-time salary. In this case, two part-time employees work 20 hours each week to be equal to 1.0 FTE (Thacker et al., 2020). Typically, a full-time worker works 32 to 40 hours a week for more than 120 days annually. Conversely, workers working less than 30 hours weekly and less than 120 days annually are part-time workers or contractors. 0.5 FTE is two part-timers working for an average of 20 hours a week each to accomplish 1.0 FTE. Therefore, 0.5 FTE is considered part-time.
1.0 Full-time Equivalent Staff Member
Typically, the FTE gives the total hours worked, but not the total employees working in an organization. Therefore, a full-time member is not always 1.0 FTE because there are instances where part-time and full-time staff members may be equal to 1.0 FTE. For example, two part-time staff members working sharing the workload (0.5 FTE each) is equal to 1 full-time employee (Thacker et al., 2020). Additionally, 4 part-time staff members can accomplish exactly a quarter of the work, which equals 1 full-time employee. At the same time, a 1-fulltime staff member working 1 official workload equals a 1-full-time equivalent employee.
Organization Staff Head Count Versus FTE
The number of staff (or headcount) in an organization adds up to the number of employees, whereas FTE is the number of full-time hours worked at the organization. Usually, headcount treats an individual as a single member of the workman population while ignoring distinctions or attributes such as hours worked, credits, status, and skills of the individual. Arguably, the headcount of the staff in an organization refers to the total number of full-time and part-time individuals (Campbell et al., 2019). In contrast, FTE counts time and members rendered for a particular organization. A 1.0 FTE of 40 hours of work time split between several part-timers or accomplished by an individual full-time worker.
A company with an employee headcount of 100 employees but out of which 82 employees are full-time, and the rest work part-time working 10 hours a week means that the part times (18) account for the work completed by four and a half full-time employees. That is 82 / 18 = 4.5 FTE. Therefore, the total number of FTE would be 82 FTE + 4.5 FTE =86. In this scenario, the headcount is higher than the FTE. Suppose all the employees work full-time for a 10-hour per-week project, then the total number of FTE equals the number of employees (100) which concurs with similar studies by Campbell et al. (2019). In another instance, say there is one 1.0 FTE employee and the other three part-time employees as distributed – Worker W – 0.3 appointment, Worker X – 1.0 appointment, Worker Y- 0.6 appointment, and Worker Z – 0.4 appointment. In this scenario, the headcount of the staff is W+X+Y+Z = 4 employees, whereas using FTE, there are 0.3+1.0+0.6+0.4 = 2.3 employees. Since no worker can be assigned more than 1.0 FTE, the total FTE would be 4.0 (equal to headcount) if all the employees work full-time. Therefore, an organization cannot have more FTEs than the headcount of the staff.
Calculation of FTE’s
There are four main critical steps in the calculation of FTE’s. The first is to compute the number of hours part-time workers work full-time. Hours worked by part-time workers = the number of part-time workers in an organization total hours in a week (40 hours) number of weeks in a year (52 weeks). Secondly is to calculate the number of hours worked by full-time workers; the number of hours worked by full-time workers = the number of full-time workers in an organization x total hours in a week (40 hours) x number of weeks in a year (52 weeks) (Welch & Smith, 2020). The third step is calculating the total hours worked, taking the sum of the total hours worked by part-time and full-time employees. Then the last step is to calculate FTEs as summarized below;
In general, FTE is given by;
For instance, if a company has a full-time weekly schedule of 37.5 hours, then a worker working 37.5 hours a week has 1.0 FTE. Employees on part-time or contract work fewer hours (Wu, 2021). If joy works for 18 hours a day in the same organization, then her FTE is simply . Another employee working for the same company for 24 hours has a FTE of . These statistics help health care managers decide which job suits their employees.
Fulltime equivalent (FTE) calculations also involve the calculation of FTE salary for both part-time and full-time employees. The actual workload is not included in this calculation (Welch & Smith, 2020). If an employee works for 6 ( of a year) months in a year with an FTE of 0.5 and earned $ 14, 000 for this period, the FTE salary == $56, 000 per year. Given the FTE and the number of hours for the work schedule, the number of hours employees work can be calculated. If Graig has 0.6 FTE for 37.5 hours as a full schedule, then the number of hours Graig works per year = hours per year. Additionally, FTE calculations can be used to determine the exact head count for a particular project. If a project requires 800 hours to complete in a company in which the whole work schedule is 8 hours per day means, it requires employees that work 100 hours per day (). It means such a company requires ten full-time workers to accomplish the project in 10 days, or if the company is less concerned about time, it can hire five full-time employees to finish the project in 20 days.
Fulltime Equivalent (FTE) is essential in determining the productivity of an organization. It helps managers and decision-makers understand a company’s specific needs and, consequently, aid decision-making. Healthcare systems give administrators insights as to whether to reduce its medical staff, restructure its staff, or hire. Additionally, many FTE calculations help administrators in performance analysis by accurately showing the company’s performance. Arguably, FTE details the productivity of each employee in the organization. Using FTE also promotes tactical decision-making in managing labor costs or restricting the organization to match market trends. It also makes it easier for an administrator to plan new projects and determine compensation and employment laws that suit their companies. Lastly, FTE calculations enable the administrators to compare the performance of a department to the other or its overall performance as a company to other companies. Indisputably, the concept of FTE is indispensable for organizations striving to achieve sustainable growth.
Campbell, S., Nguyen, T., Sibelle, A., & Soriano, F. (2019). Measuring productivity dispersion in selected Australian industries.
Hidayanti, R. C., & Sumaryono, S. (2021). The Role of Sleep Quality as Mediator of Relationship between Workload and Work Fatigue in Mining Workers. Jurnal Psikologi, 48(1), 62-79.
Thacker, P. G., Witte, R. J., & Menaker, R. (2020). Key financial indicators and ratios: How to use them for success in your practice. Clinical Imaging, 64, 80-84.
Turnea, E.-S. (2020). The Using Of Full Time Equivalent In Working Time Planning. Network Intelligence Studies, 8(15), 7-15.
Welch, T. D., & Smith, T. (2020). Understanding FTEs and nursing hours per patient day. Nurse Leader, 18(2), 157-162.
Wu, W. N. (2021, July). Organizational Resilience: Examining the Influence of Information Cost and Organizational Capacity on Business Continuity Management. In International Conference on Human-Computer Interaction (pp. 444-455). Springer, Cham.