Table of Contents
Overview
Explaining FTE And FTE Staffer
Reasons For Calculating FTE
How to Define FTE for Accurate Management
FTE Calculation Method
FTE Management: Converting FTE To Hours
Example 1
Example 2
Differences Between FTE and Capacity
Calculating Public Holidays And Leaves In FTE
Overview
Full-time equivalent (FTE) is a crucial metric for software and IT companies that assign specialists to clients on a full-time basis. Whether through body leasing, consultancy services, or dedicated teams, leveraging FTE for resource planning and forecasting offers a competitive edge while simplifying client settlements.
In this article, you’ll learn about the FTE concept, from its role in project management to calculating 8 FTE versus 0.6 FTE. Mastering FTE calculations can significantly reduce bench time and improve profitability.
Explaining FTE And FTE Employee
Before diving into FTE employees, let’s define Full-Time Equivalent (FTE). FTE is a metric used to measure employee work and project future staffing needs. In project management, FTE represents the hours a full-time employee works. HR teams use it to standardize hours and salaries for part-time employees.
For example, if 40 hours per week is your full-time standard, 1 FTE equals 40 hours. Four employees working 10 hours each would also equal 1 FTE. So, 8 FTE would be 320 hours.
Reasons For Calculating FTE
Software companies rely on FTE to plan, track, settle, and forecast employee availability. In IT, businesses often use FTE when billing clients in man-days, especially in body leasing or consulting services. This method simplifies settlements, especially when a specialist is dedicated to one client, making man-days more practical than tracking by hours.
When planning capacity, knowing the total available hours isn’t enough. You need to understand how many people are available. FTE helps by converting working hours into man-days, giving you a clear view of your workforce capacity.
The benefits Of Calculating FTE are the following:
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Estimating Long-Term Projects and Profitability
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How to Define FTE for Accurate Management
Before implementing FTE management, the first step is to define "full-time" for your company clearly. This can vary based on local regulations or client agreements, and it's essential to establish a consistent baseline.
Step 1: Understand Local Definitions
Full-time hours can differ between countries or even clients. For example, in Thailand, full-time employees work 8.5 hours per day, while in Australia, 7.5 hours per day. This presents a challenge when you must standardize FTE across multiple offices or client locations.
Step 2: Set a Standard FTE Baseline
When working with teams across different regions, like a client in Australia and outsourced development in Thailand, it’s crucial to establish one FTE baseline for your calculations. This baseline will serve as the foundation for planning resources and billing clients.
Step 3: Address Regional Variations
Suppose your company has branches in countries with different full-time work hours. If your headquarters is in Europe, where 1 FTE equals 8 hours, but you also have employees in Thailand working 8.5 hours, you could unintentionally calculate more FTEs than your actual workforce.
Recommendation: Use a Single Baseline for Consistency
Choose one consistent FTE baseline for resource planning and client settlements to avoid discrepancies. This ensures you calculate employee utilization correctly, no matter where they are located and prevents issues with overestimating available FTEs based on varying local standards.
FTE Calculation Method
Follow this step-by-step guide to calculate your Full-Time Equivalent (FTE):
Step 1: Define Your Goal
Determine the purpose of calculating FTEs. Are you aiming to forecast employee occupancy and availability, or do you want to simplify account settlements with clients?
Step 2: Establish a Baseline
Set a consistent baseline for FTE across your organization, especially if you hire employees from various countries.
- The most common baseline is based on the company’s main location. For companies operating in Europe or the U.S., this will likely be 8 hours daily.
- If your client agreements are based on FTE, consider setting a billing baseline, such as 7 hours per day.
Step 3: Consider Relevant Factors
Take into account the following factors that may affect your calculations:
- Public holidays celebrated by your organization or your clients.
- Employee time off, including vacations and sick leave.
- Employee contract terms.
Step 4: Calculate Your Baseline
For example, in May, calculate your baseline as follows:
Baseline = 20 working days × 8 hours = 160 hours
Step 5: Factor in Employee Availability
Now, consider your workforce for May. Let’s say you have:
- 50 full-time employees
- 20 part-time employees
- 3 employees taking a week off
- 1 full-time employee leaving mid-May
Calculate Your FTE using the formula:
Calculate Your FTE using the formula:
FTE = [(50 employees × 8 hours/day × 20 business days)
+ (20 employees × 4 hours/day × 20 business days)
− (3 employees × 8 hours/day × 5 business days)
− (1 employee × 8 hours/day × 10 business days)] ÷ 160 hours in May
Substituting the numbers gives:
FTE = [(50 × 8 × 20) + (20 × 4 × 20) − (3 × 8 × 5) − (1 × 8 × 10)] ÷ 160
FTE = 9508 ÷ 160 ≈ 59.43 FTE
Conclusion
This means that you can offer your clients approximately 59 full-time employees in May, even though you might have thought you had 70 available.
FTE Management: Converting FTE To Hours
Example 1
You might want to examine your employees' exact work hours as an employer. Since you already have their FTE, how do you convert it back to hours worked?
To convert the number of hours an employee will be working based on their FTE, you need to reverse the process of calculating the FTE based on the number of hours worked by that employee.
Take a look:
Let’s say you have a front-end developer named Mark, one of your part-time employees. He has a 0.6 FTE. And let’s assume that you take 8 hours of work per day as a baseline for calculating your FTEs. After all, this is how much your full-time employees spend working for you. So, if Mark works 0.6 FTE, how many hours does he work annually? How many hours is 0.6 FTE? If Mark has a 0.7 FTE annually, you need to multiply his FTE by the average number of hours worked by a full-time employee in your company per year. If it’s 8 hours a day, it’s 40 hours per week. Multiply it by 52 weeks per year, and you get 2,080.
Now you’re ready to calculate the number of hours Mark works for you:
0.6 x 2,080 = 1,248 hours per year
And if you want to know how many hours per week this amounts to, you can just divide it by 52:
1,248 / 52 = 24 hours per week
Finally, to check whether we got the FTEs and hours right, you can verify that by taking the full-time employee’s workload into account:
24 hours per week / 40 hours per week = 0.6—just like your FTE! This is FTE management at its best, as you can now easily answer the question of how many hours make up 0.6 FTE.
Example 2
Let’s say you want to measure your capacity using FTE, not hours. You can break this down by department, role, or individual employees.
For example, you see 3 FTEs available for full-stack developers. This doesn’t mean 3 developers are sitting idle. Instead, it means the total available hours of full-stack development work equal the capacity of 3 full-time employees.
Differences Between FTE and Capacity
Capacity measures an individual’s workload but doesn’t provide the full picture.
For instance, a part-time employee with 100% capacity works 4 hours if full-time is 8 hours, while a full-time employee with 100% capacity works 8 hours. That’s a significant difference.
FTE offers a clearer baseline. In this case, the part-time worker equals 0.5 FTE, giving you a quick sense of the available workforce across your team. This makes FTE invaluable for project management.
Calculating Public Holidays And Leaves In FTE
Many software companies use spreadsheets to track employee availability, including holidays and leaves. While it’s important to factor these into FTE calculations, managing the constant changes can be difficult—employees take sick days, vacations, and public holidays vary by location.
That’s where Foresight comes in. It automatically calculates available FTEs, accounting for public holidays, leaves, contract types, etc. This ensures accurate capacity planning and forecasting, no matter the situation's complexity.