The FTE dilemma

What to consider when converting to FTE

At first glance, converting work performance into FTE is very simple. But on closer inspection, things are a bit more complicated. International corporations in particular, and those that measure productivity not only in terms of personnel costs, have to take a number of things into consideration.

A shortage of skilled workers and demographic change have significantly shifted the tasks of HR managers. Whereas in the past it was primarily a matter of paying salaries on time and correctly, the Human Resources Units and People & Culture Departments now focus primarily on increasing the attractiveness of their company for existing and future employees. Because without employees there is no growth, no innovation, no future.

Flexible working time models make companies attractive

 Nothing contributes more to the attractiveness of a company than offering flexible working hours. This is confirmed by a StepStone survey of 22,500 employees in 2020. The freedom to decide for yourself how long you work is the most important criterion for applicants today – even before salary and meaningful tasks.

The catch: The tailor-made solutions for positions and employees lead to increasing confusion within the company and complicate the calculations of personnel costs and budget planning. The equation “one employee = one full-time position” is becoming increasingly rare.

The solution: All jobs are converted into full-time equivalents (FTE). This records the actual hours worked – regardless of how many people perform them.

FTE calculations create cost transparency

At first glance, the principle of the calculation is very simple: the number of working hours per full-time employee is determined company-wide. Assuming it is 38 hours per week, this corresponds to 1.0 FTE; a 19-hour week would correspond to 0.5 FTE. According to this principle, each employee receives an FTE value that reflects their weekly working hours.

The advantages of converting to FTE are obvious:

• Human resources managers can quickly get an overview of the company’s workforce.
• The comparability of staffing and costs of departments, locations and other units is increased.
• Company managers can more easily budget their personnel costs based on FTE.
• Planning, especially with regard to distribution, relocation, and the creation and reduction of work capacity, becomes more straightforward.

FTE values ​​are not easily comparable internationally

However, the FTE approach is not without its pitfalls. It does not fully reflect the complex reality of a company. This is particularly true in international corporations.

For example, the 38-hour week is standard in Germany, but not in other countries. In Switzerland, for example, the 40-hour week is the norm. In order to realistically compare the labor costs of the two countries, the different weekly working hours should be taken into account. If this is neglected, an employee in Switzerland will appear to be significantly more expensive than his or her counterpart in Germany. Of course, the more international a company is, the more complex the comparisons become.

Over the course of a year, individual countries also differ in the number of vacation and public holidays they have. For example, an employee in Germany can expect around 39 days off work, in Poland 33, and in the USA only 20 (see also Vacation days worldwide: country comparison with USA, Japan & Co. (rp-online.de) . Here, too, the comparability of an FTE based on German conditions with an FTE from another country is not really given.

The introduction of a group FTE value can help

Many companies solve this problem by setting an internal FTE value that applies across all borders. Similar to a currency, a specific FTE value is set at 1, which all country organizations then use as a guide. Assuming that the annual working time for the company FTE is 1,688 hours, but the total number of hours in Turkey per year is 1,832 hours (source:  https://de.wikipedia.org/wiki/Liste_der_Länder_nach_Arbeitszeit ), a company FTE of 1.09 would apply for Turkey.

In this way, country-specific factors can be taken into account much better when comparing costs than with an FTE that is set at 1 per country and in accordance with the national standard.

Another stumbling block arises when comparing months: February has fewer days or working hours than the other months of the year. This could also play a role when billing hours for short-term projects.

And training and further education periods also, strictly speaking, minimize the actual work performance of a worker.

Productivity is more than working time

Despite all efforts to make the FTE calculation fair and comparable, one thing must not be forgotten: it is always a purely quantitative approach.

Such a view is not enough to make valid business decisions. A more realistic assessment of the value of a job or a worker requires a more comprehensive view of their productivity, i.e. other important factors should also be taken into account. Such as:

• What level of training does it require?
• What professional skills does she have?
• What other qualifications do you have?
• What role does it play in the field?
• What is the error rate in the work process?
• u.v.m.

Comprehensive consideration leads to better business decisions

It also makes sense to adapt the selection of productivity factors to the respective function within the company:

• Is it a job in production, sales or administration?
• Is it a project involving freelancers and temporary workers?
• Are these additional tasks that have been planned for a long time or are they necessary at short notice?

Only when those responsible for human resources take such factors into account can they gain an accurate picture of the actual personnel situation, of the capacity, workload and overload of certain departments, of the future viability and weak points in their company. The bare FTE calculation cannot achieve this.

A modern HR controlling solution such as  4PLAN HR  can take all desired factors into account and present them clearly. It can provide various FTE assessments for different target groups, such as local management, corporate headquarters, the public, etc., and determine the required key figures.

The effort is worth it. All strategic company decisions benefit when future personnel requirements can be planned as realistically as possible. After all, what would all the plans be worth without the right employees in the right place?