FTE salary is a method that some companies use to work out how much to pay employees and contractors who do not work full time for their businesses. By using a calculation based on the amount that workers earn for a full-time salary, they can then fairly calculate how much to compensate others for their time, respectively.
If you are relying heavily on a freelance workforce, you would likely benefit from a Freelancer Management Solution (FMS) like Fiverr Enterprise, which can help you calculate what resources you have available, as well as understand your costs and availability.
To learn more about how FTE works when calculating salaries for your workers, keep reading!
What is Full-Time Equivalent (FTE)?
Full-time Equivalent (FTE) is a way of calculating your workforce capacity. With a FTE calculation, you understand the real-world resources of your company – unlike headcount for example, which only tells you the number of people that you have working for your organization, and so may over or under represent these resources.
How to calculate FTE Salaries
The first step when using FTE to calculate salaries is to define what you mean by full time. How many hours is a full-time worker employed by your company? This is usually between 37-40 hours.
Once you’ve decided what full time is, you can then classify employees as full time, part time, or something else entirely, like a consultant or a contractor.
By calculating the annual hours of a full-time worker, you can then work out how much they make per hour, and multiply it by the number of hours part-time employees work to adjust for their accurate compensation. If a full-time developer is making $80,000 a year working 40 hours a week, then it makes sense that a developer working 30 hours a week should make $60,000 a year, for example, as they work three-quarters of the amount of time.
For independent contractors, this approach will be different. A freelancer usually sets their own rates, and these can be higher than in-house staff, as they need to consider their own taxes and benefits. As a result, even with the higher initial or per-hour price tag, hiring a freelancer can often save money, at the same time as offering niche skills and expertise.
Advantages of Using the FTE Salary Model
The main advantage of using FTE as a salary model is that you can standardize and compare your labor costs. It’s easier to calculate how many new hires or freelancers you can afford when you can see how many FTE you’re paying for already
Departments can use FTE to compare how much labor is costing across teams in a transparent way, and to standardize how much they pay each worker who is taking on a similar role, no matter how many hours or days they work.
The FTE salary model also makes communication simpler. If one department has a lot of faces, it can be easy for stakeholders to think they have plenty of resources in place. If in fact, this is just a high headcount, and the FTE is lower than in other teams, FTE is a great way to make that known. If staff members would like an increase in salary, or feel that they are being compensated unfairly, explaining the FTE can help show that you’re paying evenly across the board.
Using FTE is a smart way to streamline payroll, as you don’t have different costs for different employees or workers who are holding the same role. You can simply work out the number of hours, and you have the salary for any job description ready to go.
Challenges with FTE Salary Model
That’s not to say that FTE salary models come without challenges. It can be a complicated method to understand, and when you say that a team has 5 FTE, it may cause assumptions that there are 5 people in the team, when actually there could be many more. Some workers may also feel that although they have the same role as someone else, their workload is more intense or their experience means they should have a higher salary at the end of the month.
There are also limitations in capturing how much work is performed, as FTE just tells you the hours worked, not productivity. Freelancers for example are often thought of as being more productive than full-time or part-time in-house employees, so what they can achieve with 40 hours may be much more than what a full-time worker could do in a single week at the office.
It’s also tough to define “full time” with one meaning across the world. Even within the US, the IRS considers full time to be anywhere between 32-40 hours per week, or 130 hours each month. Now think about other countries, and today’s remote working landscape. A full time position in Chile is on average 45.7 hours per week, while in Mozambique – 28.6 is the average full-time work week. With these kinds of variations globally, using FTE to set salaries can be tough. And that’s before you consider how far the same salary will go in different regions! It could be ethically complicated to set your salary worldwide by the same metric.
Streamlining Payroll Using Technology like Fiverr Enterprise
Especially for freelance talent, using a metric like FTE salary might not fit the bill. After all, freelancers need to be able to set their own rates or project prices, and you may not even know how many hours they’ve worked in any given time period. But of course, all organizations want to make that end of the month payroll as easy as possible. That’s why a freelance management system (FMS) is such a perfect addition to any organization’s tech stack.
Fiverr Enterprise makes paying freelancers easy, by consolidating each of your global freelance payments into one automated monthly invoice, so you never have to organize multiple freelance contracts again.
Every invoice is broken down by spend, PO and cost center, so that you can be 100% sure that nothing gets lost.
We give you the flexibility you’ve always wanted by offering you various ways to pay your global freelancers, whether it be hourly, by project, or even by specific milestone. When it comes time to pay your workforce, Fiverr Enterprise lets you instantly pay your freelancers in 190 countries, by 80 different currencies and across 7 different payment methods, all with a single click from inside the FMS.
If this sounds like something that could enhance your payroll processes and support a freelance workforce strategy, schedule 30 minutes to talk to one of our workforce experts.