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HR Cost Per FTE – Definition
HR Cost Per FTE is the total cost a company spends on human resources (HR) function per full-time equivalent. This metric helps you to understand cost expenditure to develop and manage human capital.
Small companies have higher HR costs per employee than medium or large industries. The reason is that when staff size increases, the cost gets distributed to more employees. Thus, larger companies have lower HR Costs per employee.
The HR department is the backbone of a company. HR workforce undertakes duties that help to develop and manage company workforce strategies. They also help in planning and defining policies.
In addition to the above, they source new talents for the company. They also perform duties like deploying the workforce for an effective outcome, employee-company relationships, employee training, and employee information management.
Formula To Calculate HR Cost Per FTE
To calculate HR Cost per employee, divide the total HR costs per year by FTE count at the end of the year.
Where:
FTE Count = Number Total Full-time Employee
HR Cost = Fixed compensation(salaries) + Variable compensation + Benefits + Indirect cost
Fixed compensation includes salaries, variable compensation includes commissions, and benefits include health insurance, PF/gratuity.
FTE stands for Full-Time Equivalents. If your company has part-time employees, you need to convert them into full-time equivalent employees.
An FTE working hours per year are 2080. Hence, to convert the part-time employees to FTEs use the following formula:
Part-time employees X Weekly Hours X 52 Weeks divided by 2080 hours.
Examples
Let us understand this ratio with some examples.
Small/Medium Size Company
Company Name: ABC
HR Costs: $ 1,50,000
FTE Count: 65
Applying the formula:
= $ 1,50,000 / 65
= $ 2,308 HR Cost per FTE
Large Size Company
Company Name: XYZ
HR Costs: $ 12,50, 000
FTE Count: 1100
Part-Time Count: 125
Weekly Hours: 20 Hours
In this example, we have part-time employees. So first, we need to convert the part-time employees to FTEs using the above-given formula:
= (125 part-time employees X 20 hours per week X total 52 weeks) / 2080
= 62.5 FTEs
New FTE Count = 1100 + 62.5 = 1163 FTEs
Applying the HR Cost Per FTE formula:
= $ 12,50,000 / 1163
= $ 1,074 HR Cost per FTE
Uses of HR Cost Per FTE
- HR cost per FTE shows the amount spend on human resource activities by a company on each employee.
- It helps you to keep an eye on departmental costs.
- You can measure overspend or underspend of HR costs.
- Managers can predict future recruiting and other workforce-related costs.
- It helps you calculate Return On Investment.
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