What to consider when converting to FTEs
At first glance, converting work output into FTE is quite simple. But on closer inspection, things are a little more complicated. International corporations in particular, and those that measure productivity not only in terms of pure personnel costs, have to take a number of things into account.
Fa cThe shortage of skilled workers and demographic change have significantly shifted the tasks of HR managers. Whereas in the past it was mainly about paying salaries on time and correctly, today the Human Resource Units and People & Culture Departments are primarily concerned with increasing the attractiveness of their company for existing and future employees. Because without employees, there is no growth, no innovation and no future.
Flexible working time models make companies attractive
Nothing contributes more to the attractiveness of a company than the offer of flexible working hours. This was confirmed by a StepStone survey of 22,500 employees in 2020. The freedom to decide for themselves how long they want to work is the most important criterion for applicants today – even more so than salary and meaningful tasks.
The catch: the customized solutions for jobs and employees lead to a growing lack of clarity for the company and complicate the calculation of personnel costs and budget planning. The equation “one employee = one full-time position” is working out less and less often.
The solution: All jobs are converted into full-time equivalents (FTE). This records the actual hours worked – regardless of how many people are involved.
FTE calculations create cost transparency
The principle of the calculation is very simple at first glance: the number of hours worked by a full-time employee is determined company-wide. Assuming 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:
- Those responsible for human resources quickly obtain an overview of the company’s workforce.
- The comparability of staffing and costs of departments, locations and other units is increased.
- The company’s managers can budget their personnel costs more easily on the basis of FTE.
- Planning, especially in terms of distribution, shifting, setting up and dismantling work capacities, becomes less complicated.
FTE values are not easily comparable internationally
Nevertheless, the RTD approach is not entirely without pitfalls. This is because it does not fully reflect the complex reality of a company. This is particularly true in international groups.
The 38-hour week is standard in Germany, but not in other countries. In Switzerland, for example, the 40-hour week is the order of the day. In order to be able to realistically compare the labor costs of the two countries, the different weekly working hours should be taken into account. If this is not done, an employee in Switzerland appears to be significantly more expensive than his or her counterpart in Germany. Of course, the more international a group is, the more complex the comparisons become.
Over the year, individual countries also differ in the number of vacation days and public vacations. For example, an employee in Germany can expect around 39 statutory vacation days, 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, it is not really possible to compare an FTE based on German conditions with an FTE from another country.
The introduction of a Group FTE value can provide a remedy
Many groups solve this problem by setting an internal FTE value that applies across all borders. Similar to a currency, a certain FTE value is set at 1, which is then used as a benchmark for all country organizations. Assuming an annual working time of 1688 hours for the Group FTE, the total number of hours worked in Turkey over the year is 1,832 hours (source: https://de.wikipedia.org/wiki/Liste_der_L%C3%A4nder_nach_Arbeitszeit [CI1] ), a Group 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 for each 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 in hourly billing for short-term projects.
And strictly speaking, training and further education periods also minimize the actual work performance of a worker.
Productivity is more than just 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.
In order to make valid business decisions, such a view falls short. 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. For example:
- What level of training does it require?
- What professional skills does she have?
- What other qualifications distinguish you?
- What role does it play for the sector?
- How high is the error rate in the work process?
- and much more.
Comprehensive view 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 with freelancers and temporary workers?
- Is it about long-planned or short-term, necessary additional tasks?
Only if those responsible for human resources also take such factors into account will they gain an accurate picture of the actual personnel situation, of the utilization, overutilization and overload of certain departments, of future viability and weak points in their company. The bare FTE calculation cannot do this.
A modern HR controlling solution such as 4PLANHR can take all the desired factors into account and present them clearly. It can provide various FTE assessments for the 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 corporate decisions benefit if 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?