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Formula for Staff Cost per Hour

Regarding Staff Billing Rates: Is there a good formula to use in calculating the COST per hour for each employee? Of course I should use the per hour rate, and actual benefits for health, life, dental paid for the employee. Anything else? Or a set formula taking everything into consideration?

Thanks,

Betty

I have always used the gross salary divided by 1640 productive hours for cost rate, this takes into account vacation time, holiday time, as well as taxes and benefits. The billing rate is 3 times the cost

Steven D. Orenstein
Chief Operating & Financial Officer
Kern Direct Marketing, Inc.

Betty,

In addition to the items you listed, I also include payroll taxes, Workman's Comp, and the 3% 405(k) employer contribution that we make. Then we triple that number to come up with the hourly billing rate.

Good luck!

Catherine Colangelo,
The Phillips Agency

We have the same cost rate per hour for employees in C&P since this information is available to everyone and can't remain confidential. We calculate it once a year. It's the total overhead costs including salaries, benefits, vacation, taxes, office expenses, rent, utilities, etc., divided by the number of hours that are worked by the staff. For example, if all overhead/salaries/benes is $25,000 per month for 5 people, you multiply $25,000 by 12 for the yearly expense of $300,000. Then take 5 people times the 2040 working hours in the year which is 10,200. Divide $300,000 by 10,200 hours and the cost rate per hour per person is $29.41.

If you want to know the exact cost per person, you'd divide all overhead minus the employee benefits and salary to establish the cost of overhead per person per year and then add it to that individual's package and divide by 2040 hours.

Debbie

I would also include the employer's tax (payroll) liability as well asany 401k match the company may offer.

Michele Padilla,
Controller Moosylvania

A normal benchmark for 'weighted labor cost' is timekeeper salary plus 25% (for payroll tax, vacation, holidays, employer paid benefits) Another cost factor that I use to determine 'net profit' is to divide general and admin expenses (everything but weighted labor cost) by the total of billed hours--thus getting the overhead cost per hour for project related staff. Administrative salaries, benefits and payroll expenses are part of that administrative overhead load. Example:

Billable Staff weighted labor cost for 2003: 1.5M Total Hours billed in 2003: 30,000 Average labor cost per billed hour $50.00

Total Operating expenses: 2.5M G&A Expenses= 1.0M Overhead Load=2.5M/30,000 hours= $33.33 per hour

If you set the weighted labor cost per billable staff correctly on the staff page, C&P will give you the labor cost on a project basis. You can then calculate the overhead cost for that project by multipying the total hours on the project by the per-hour overhead load, and get the net-net profit for that project.

You will be surprised that some project that seem to have a healthy gross profit end up losing $$ when their share of G&A are included.

According to Phil Edwards (Assoc.Professional Design Firm's financial consultant) and our accountant - the cost of the employee is strictly their salary. (Direct labor costs) All formulas are calculated from that. ie: Sally earns $30/ hr is 70% billable and produces $300,000 in revenue annually or $206/hr ($300,000/(2080hrs x70%)).

Diane Smith,
Business Manager
Donaldson Makoski Inc.

I use a calculation based on Annual Wage, our contribution to health insurance, and parking.

Best Regards,

Steve Deiters,
Creative Department (of America)

Betty, We take the employee's actual hourly rate times 1.25 and use that for COST. This seems to be a fair markup to cover taxes, benefits, and paid time off. Hope that helps.

Terry L. Jones, Jr.
Controller
Harvey and Daughters, Inc.

Employee "Cost" is not just their base wage; you need to include all related costs including employer matching taxes, unemployment taxes, worker's comp costs, any other group benefits (life insurance, health insurance, 401(k) matching, etc.) the agency pays for the employee.

Note: "Billable Hours" are the total working hours/year (40hr week x 52 wks would be 2080) LESS Holiday/Vacation/Personal Days (for example: 10 holidays, 3 weeks vacation, 5 personal days =3D 6 weeks unbillable =3D base of 1840 hours available per year x %billable (in the case of 70% billable that would be 1288 available Billable Hours/per year for that employee) Billing Rates can then be calculated at cost or you can also add a profit margin to the billing rate.

Hope this helps

Deborah A. Ring,
Financial Manager