How to Calculate FTE Salary for Your Employees

Full-Time Equivalent (FTE) salary is a standardized measure used to compare compensation across various employment arrangements. It allows for a consistent understanding of an employee’s earning potential as if they were working a full-time schedule, regardless of their actual hours. This metric is useful for both employers and employees to evaluate compensation packages and ensure fairness. It helps in assessing the true cost of labor and understanding how different roles align within an organization’s overall compensation structure.

Understanding Full-Time Equivalence

Full-Time Equivalent refers to the number of hours considered a standard full-time work year. The widely accepted baseline for a full-time work year is 2,080 hours, derived from 40 hours per week by 52 weeks. This standard provides a consistent measure for comparing work arrangements.

Organizations may establish their own definitions for full-time employment, which can differ from the conventional 40 hours per week. For instance, some companies might consider 35 hours per week as full-time. It is important to use the specific full-time standard set by an organization when performing FTE calculations, as this forms the foundation for accurate comparisons.

Calculating FTE Salary for Hourly Workers

Converting an hourly wage into a Full-Time Equivalent salary provides a clear picture of annual earning potential. This calculation assumes the hourly employee worked a standard full-time schedule for the entire year.

To determine the FTE salary, multiply the employee’s hourly rate by the standard full-time hours in a year. Using the common standard of 2,080 full-time hours per year, the formula is: Hourly Rate × 2,080 Hours Per Year. For example, an employee earning $25 per hour would have an FTE salary of $52,000 ($25/hour × 2,080 hours/year).

This method helps standardize compensation for comparative purposes. This calculation allows for a direct comparison of an hourly wage to a salaried position, assuming equivalent work hours. It is a practical tool for budgeting, compensation analysis, and understanding the annual value of an hourly role.

Calculating FTE Salary for Part-Time Employees

Calculating the Full-Time Equivalent salary for part-time employees helps determine their annual earnings if they worked a full-time schedule at their current pay rate. This standardization is helpful for comparing compensation levels across an organization. The calculation depends on whether the part-time employee is paid hourly or a fixed part-time salary.

For a part-time employee paid an hourly rate, the FTE salary is found by multiplying their hourly rate by the standard full-time hours in a year. For instance, a part-time employee earning $20 per hour who works 20 hours per week would have an FTE salary of $41,600 ($20/hour × 2,080 hours/year).

If a part-time employee receives a fixed annual salary for their part-time hours, the calculation involves a ratio. The formula is: (Part-Time Annual Salary / Actual Hours Worked Annually) × Standard Full-Time Hours Annually. For example, if an employee earns $25,000 for working 1,040 hours annually (20 hours/week), their FTE salary would be $50,000 ($25,000 / 1,040 hours) × 2,080 hours.

Special Considerations in FTE Salary Calculation

When calculating Full-Time Equivalent salary, certain scenarios require specific adjustments to ensure accuracy. For employees with highly variable work hours, it may be beneficial to average their hours over a set period, such as three or six months. This averaging helps establish a representative weekly or annual hour count for the FTE calculation.

An organization’s internal definition of a “full-time” workweek might differ from the common 40-hour standard. Some companies, for example, consider 35 hours per week as full-time. In such cases, the organization’s specific definition of full-time hours must be used as the denominator in all FTE calculations.