# What is a Full-Time Equivalent (FTE)?

Definition: The Full Time Equivalent is a measure that allows the company to calculate the equivalent number of full-time employees it would have on a given period of time. In other words, it allows the company to unify all types of employees to understand how its payroll would look like from a full-time perspective.

## What Does Full Time Equivalent (FTE) Mean?

The Full Time Equivalent ratio helps the company assess its actual employment figure by adding all hours paid to its employees (full-time, part-time, or any other) and dividing them by the number of hours that a full-time employee should work in that given period. The results will reflect the actual full-time payroll of the company. These metric is particularly important when companies are comparing themselves with industry averages or with close competitors.

By comparing full-time employee’s numbers between industry competitors a company can analyze its current status about staffing, this can lead to conclusions like whether the company is under-staffed or over-staffed. Under normal circumstances, a full-time employee works 8 hours a day for 5 days a week. That would mean that a full-time employee would work an approximate of 40 hours a week and 160 hours a month.

Let’s take look at this example for further illustration

## Example

Modern Furniture Co. is a company that manufactures home and office furniture. The company currently has 30 employees on its payroll. Of these 30 individuals, 10 of them work full-time (8 hours a day), 15 of them work part-time (4 hours a day) and the other 15 work 2 hours a day. The company needs to compare its employment figures with two other competitors in the region and in order to do so they need to calculate the Full-Time Equivalent of its current payroll. According to our concept, how can they do this?

On our previous discussion, we stated that the full-time equivalent was calculated by adding all hours paid to current employees, in this case that would be 850 hours a week (( 10×8 )+( 15×4 )+( 15×2 )) x 5days ), and then divide that by the standard 40 hours a week that a full-time worker should do, that would result in 21.25 full-time employees working for the company. By comparing that figure with industry averages the company can analyze its current productivity.