What Are Finance FTEs and How Can You Minimize Them?

Finance FTEs--or full-time equivalent--are one of the crucial performance indicators organizations use to determine their employees' workloads. The goal is to see how many part-time employees you have and the hours they worked in any given period. 

The breakdown is an average, and this data enables you to make better financial decisions for allocations, labor costs and workforce distributions. 

Key Takeaways: 

• Finance FTEs calculate the total number of full-time workers based on hours worked instead of the precise number of employees.
• The benefits of calculating your finance FTE include performance analysis, improved decision making, easier time planning projects and more accurate comparisons regarding performance and labor costs.
  
  

You can calculate your FTE in four easy steps using formulas, which you can use as a basis for calculating annual FTE.

What Is Finance FTE?

Finance FTEs is a metric that calculates the total number of full-time workers based on hours worked instead of the precise number of employees. When it comes to the FTE, every hour worked by a part-time employee counts based on their average working hours.

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Knowing your FTE is required under the Affordable Care Act (ACA) and when filing for certain tax credits. Full-time equivalents are calculated slightly differently for each of these uses, and you will need to know how to calculate the FTE for each form. 

Benefits of calculating your finance FTEs include:

• Improved Decision Making: Use calculated values to make important personnel and workforce planning decisions. Allocate more or less toward labor costs and work with HR to assess necessary team changes. Is hiring a part-time worker better than a full-time one? Your finance FTE can answer that and many more questions about your workforce. 
• Performance Analysis: FTEs help ensure adequate employee performance management. They give you a precise view of employee performance. FTEs are also more valuable than knowing how many employees your company has because it indicates whether a full-time employee is necessary to produce the same results as a part-time worker. 
• Respect for Legislation: Finance FTE determines the labor and compensation laws that apply to your company. For example, if your state requires that all full-time employees receive specific benefits, you can use the FTE to segment workers that sometimes work a 40-hour week, but generally only work part-time. 
• Easier To Plan New Projects: Easily assign projects to employees with various employment contracts when you can better calculate employee performance regardless of how many hours they work each week.
• Accurate Comparison: FTEs go beyond comparing the number of employees to productivity. By comparing performance with your FTE calculations, you can optimize production capabilities regardless of industry.

How To Calculate and Minimize Finance FTEs 

To calculate your annual FTE, begin with 2,080 annual working hours (equivalent to 40 hours per week for 52 weeks), excluding holidays and absences. Using this figure, you can calculate the finance FTE quickly with these four steps, beginning with the following FTE formula:

Final finance FTE = Total Part-Time Employee Hours + Total Hours for All Full-Time Workers / Calculation Period (8 for daily FTE, 173.33 for monthly or 2080 for annual FTE)  

For example, for daily FTE, your calculation would look like this: Total PT hours + Total FT Hours / 8 = Daily FTE. 

Monthly FTE: Total PT Hours + Total FT Hours / 173.33 (the average number of working hours in a month of 40 X 4.333).

Annual FTE: Total PT hours + Total FT Hours / 2,080   

Step 1: Determining Part-Time Numbers  

You first need to figure out the number of hours your part-time employees worked. To do this, multiply the number of part-time employees by the number of hours they worked per week. Then multiply your answer by the number of weeks worked.

For example, if you have two part-time employees that worked 10 hours a week for 25 weeks and five part-time employees who worked 25 hours a week for 30 weeks, your calculations will look as follows:

2 x 10 x 25 = 500 hours

 5 x 25 x 30 = 3750 hours 

3,750 hours + 500 hours = 4,250 part-time hours

Step 2: Determine Full-Time Numbers

Next, define the total hours your full-time employees worked over the given period. In this example, we are calculating the annual FTE. Full-time workers work more than 120 days a year and about 40 hours per week, so make sure to include all full-time employees that fall within that parameter. Use this formula for the full-time numbers: 

Total Full-Time Working Hours Per Year = Number of Full-Time Employees x Weekly Working Hours x 52 weeks

For example, if you had seven full-time employees working 40 hours per week, you would have 14,560 full-time employee hours. 

(7 employees X 40 weekly hours) 52 = 14,560

Step 3: Determine Part-Time and Full-Time Numbers  

Add the total number of hours worked by full-time employees to that of the part-time workers for the total number of hours for all of the company's employees. 

Here is that formula:

Total Hours Worked by All Employees Per Year = Hours of All Full-Time Employees + Hours of All Part-Time Workers 

Using the numbers from steps 1 and 2 above, we would have:

14,560 (full-time) + 4250 (part-time) = 18,810 total hours

Step 4: Divide the Total Numbers  

Divide the number of hours of part-time and full-time employees by the standard full-time hours. The answer would give us the FTE for any given period. That formula would be:

FTE = Total Number of All Employee Hours / 2080 (total full-time hours per employee per year)

For example, using our calculation examples from before:

18,819/2080 = 9.04 

                                             Image Source: Finance-Led Planning | Vena Solutions

Better Understand Your Numbers With Vena    

To quickly and easily access the data to determine your FTE, you need FP&A software solution powered by Excel. Vena's free Executive Dashboard Template allows you to review the total hours each of your employees worked to give you a streamlined approach to minimizing your finance FTEs.

Want to learn more about other essential metrics your company should track? Check out these articles:

• How To Find New Revenue Streams From Your Analytics
• How To Improve Your Financial Forecasting Accuracy in 30 Days
• 7 Financial KPIs Your Management Teams Should Monitor
  
  
  

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