Full-Time Equivalent (FTE) and headcount are two ways of measuring your workforce. Each has their pros and cons, and will be right for specific use cases. In this article, we will explain how each approach works, the key differences between the two, and how you can choose which method suits your business needs.
Learn more about managing a dynamic and complex organization by speaking to one of our workforce experts about Fiverr Enterprise.
What Is Headcount?
To work out the headcount for your organization or for any specific project, you just need to count the number of people involved. Headcount is a simple metric that tells you how many workers you have in place, no matter how many hours they are working. To calculate headcount, you simply add together all of your workers, whether they are full or part-time employees, seasonal workers, freelancers, or consultants.
What Is Full-Time Equivalent (FTE)?
Full-Time Equivalent (FTE) is another way of counting resources, but instead of the number of people, it calculates how much capacity you have in terms of full-time hours. To calculate FTE, you need to know what you consider to be full-time hours, usually 37 or 40 hours per week. You then add together all the hours of all of your workers, and divide that by the full time hours.
Calculating Headcount vs FTE
Let’s say for example you have 10 workers. 5 are full-time employees that work a 40-hour work week, 3 work 20 hours per week, and 2 are freelancers who have a 10 hour weekly retainer. Your headcount will be 10, while your FTE is worked out as follows:
5 full-time employees: 40 x 5 = 200
3 part-time employees: 20 x 3 = 60
2 freelancers: 10 x 2 = 20
280 hours divided by 40 hours = 7 FTE.
Benefits of Using Headcount
Headcount is a simple and straightforward metric that is easy for HR to complete. Every time a new worker is onboarded, they can be added to the organizational headcount, and this number can be used for organizational structuring and reporting. HR often uses headcount reporting to define hierarchy and make sure that all teams have a manager or director in place. As headcount grows or reduces, this metric provides insight into the scale, growth and reach of the organization.
Benefits of Using FTE
The main benefits of using the FTE approach is that it’s a real-world representation of your organization’s capacity. Having a headcount of 10 doesn’t mean a large team if all the workers are only contracted 5 hours a week. FTE allows HR to compare the staffing levels between different teams, comparing like for like and seeing which departments have more resources in place. The same approach can be used to compare resources over time. For organizations with a more dynamic workforce structure, one that leans heavily on an alternative workforce, FTE can be a lot more accurate than simple headcount.
FTE vs. Headcount: Key Differences
There are three main differences between using headcount and using FTE to calculate resources in a department or organization:
- Focus: While FTE focuses on the actual capacity of the workers, headcount simply looks at how many people are working for the business. While headcount may suffice for workforce planning or reporting, it doesn’t give an accurate assessment of resources.
- Complexity: Headcount is as simple as counting the number of workers, while FTE involves gathering the information on how many hours are being worked, which can be difficult, especially with freelancers working per project.
- Applications: FTE and headcount are used for different applications. For example, headcount can help HR to avoid overstaffing or to adequately plan a tech stack or office usage, while FTE can support capacity planning or scope on a specific project.
How to Choose between FTE and Headcount
To understand whether you want to be measuring FTE or headcount, you’ll need to analyze your organization in more detail. What are you looking to find out? If for example, you want to make sure there is enough equipment in the office to meet demand, then headcount is likely to be the right metric. In contrast, if you’re estimating how long a project will take by a specific department, you’re probably looking for an accurate FTE calculation.
It can also help to consider the nature of your employment set-up. Do you only hire full-time employees? If that’s the case, then headcount and FTE are one and the same. However, as the wider workforce evolves, an increasing number of businesses are relying on a contingent and non-traditional workforce, in which case FTE will become more important over time.
Don’t forget to evaluate your reporting requirements, as you may need to disclose both headcount and FTE for specific reasons. One example is determining employer size under the Affordable Care Act. Any company with more than 50 FTE (determined as more than 30 hours of work per week) will need to provide affordable health insurance coverage to their full-time workers.
Fiverr Enterprise Can Help You Stay on Top of Your Workforce
In reality, you’ll likely need a combination of both metrics at some point. Headcount and FTE are both very important to stay on top of. However, as we said before, with more organizations hiring freelancers, it can be hard to know exactly what resources you have in place, and how this translates to capacity and availability.
Fiverr Enterprise is a SaaS solution that gives you full visibility and control over your entire freelance workforce by allowing you to source, hire, onboard, manage and pay, all while ensuring compliance, so your teams can work faster and maximize business growth.
For capacity planning and aligning workforce strategy, Fiverr Enterprise allows you to see at a glance how many freelancers you have in your talent pool, who is currently engaged in long-term or retainer agreements with your business, and which untapped resources you might be able to use to scale up on demand. Just consider us your silver bullet for workforce management.
Want to see how it works for yourself? Schedule 30 minutes with one of our workforce experts.