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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.
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.
Let us understand this ratio with some examples.
Company Name: ABC
HR Costs: $ 1,50,000
FTE Count: 65
Applying the formula:
= $ 1,50,000 / 65
= $ 2,308 HR Cost per FTE
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
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