Full-time Equivalent FTE Outsourcing Glossary

fte meaning

How payroll is processedThe payroll process nowadays usually involves utilizing payroll software for more efficient and accurate handling. Yet, most small business owners still handle their payroll functions manually, especially when they are starting. Outsourcing payroll servicesOne of the more https://www.bookstime.com/ popular outsourced functions is the payroll process. Because of the importance of having an efficient payroll, companies that can afford to do so tend to outsource it to dedicated professionals. A full-time employee is also privileged with statutory benefits that are provided by the employer.

All the above-mentioned factors end up costing the company something and affecting its bottom line. For example, an employee working 20 hours per week is considered half a full-time employee (if the employer considers a 40-hour workweek full time). As long as the employee’s hours add up to 40 hours per week, it doesn’t matter what hours and days they work. Since FTE considers the total time worked, it provides flexibility. This is critical in today’s workplace, with more people working remotely and with flexible hours. For the daily and hourly workers, employers should calculate the total number of hours or days an employee has worked in a pay period. Thanks to the scale of staff leasing outsourcing companies, they are in a position to offer more competitive benefits, such as lower-cost healthcare plans, to which smaller companies would not have access to.

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Instead, organizations can hold their business operations on a remote setup, most usually having their teams in an office provided by the BPO firm. Converting the hourly wages of part-time employees into full-time equivalents may be beneficial in evaluating these metrics.

fte meaning

FTE is Full-Time Equivalent; it represents the total hours worked by a full-time employee on a regular basis. The organization full time equivalent uses the concept of converting the work executed by part-time employees compared to full-time employees.

The Importance of Determining FTEs

A project manager estimates that a major deliverable will take 50 hours to complete. The project manager can assign work on this deliverable in a variety of ways. Assuming that employees assigned to the project can spend a maximum of 10 hours per week working on this project, the task would take one person five weeks to complete. If the work plan calls for the task to be completed in three weeks, the project manager could allocate two people to work on the task, each for 25 hours. Management works with human resources to determine which positions should be full-time and which should be part-time, typically based upon job descriptions. Depending on the laws and policies the organization must follow, they may also gain a financial advantage by classifying positions one way or another.

Let’s say you have 100 employees, but 18 of those employees are part-time and only work 10 hours a week. Altogether, those 18 employees only account for the hours of four and half full-time employees. Calculating headcount is as simple as adding up your employees, while FTE refers to the number of full-time hours being worked at the company.

The FTE calculation methods for determining business size

You’ll find FTE employment in several industries, like government, financial, nonprofit, and academic organizations. Remit deductionsLastly, companies should make sure to remit the deductions from each employee as a part of their compliance. It’s best to consult an accountant for the appropriate tax deductions and always report new hires to the Internal Revenue Service.

According to the IRS, an employee’s hours of service for a year include all the hours for which the employee is paid or entitled to payment for the performance of duties for the employer during the tax year in question. This includes paid vacation, holiday, and sick leave, in addition to other paid leaves. FTE efforts shall not include the work of general corporate or administrative personnel. After all, the net costs of hiring additional part-time employees may in fact be lower than he more visible cost of overtime pay for existing staff, and FTE is used to uncover such findings. Using time tracking software, like Homebase, will allow you to run a historical report based on employee work history and status to gather the average hours worked using custom fields. In addition, Homebase provides small business employers with a range of scheduling options to ensure your staff hours are within the correct range.


The 2,080 figure can be called into question, since it does not include any deductions for holidays, vacation time, sick time, and so forth. Alternative measures of FTE that incorporate these additional assumptions can place the number of hours for one FTE as low as 1,680 hours per year. The exact number will depend on the country where the employment is occurring, since the number of holidays varies by country. Whereas, employees that works 20 hours per week are considered 0.5 FTEs. In the chart below, because both Carole and Lynn are full-time employees, they would each be counted as one FTE.

fte meaning

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