Job Cost Rates

An employee's job cost rate is the rate at which you want to cost the employee's labor to the projects on which he/she works. An employee's job cost rate may or may not be the same as his or her payrate.

You must define a job cost rate for each employee in the Employee Info Center. You can choose one of three methods to calculate the job cost rate for an employee:

• Fixed Hourly Rate — The most common method for calculating a job cost rate is to apply a fixed hourly rate to all regular hours an employee works. This method provides a standard value for each hour an employee works (regardless of what project the employee works on), simplifies labor-based billing calculations, and allows for a more consistent ratio of labor cost to fee revenue. This method makes it easy for project managers to budget labor costs.

  For an hourly employee, the fixed hourly rate is the employee’s hourly pay rate. For a salaried employee, Vision calculates the hourly rate using the following formula:

  Job Cost Rate = Annual Salary / Total Hours Worked per Year (usually 2,080)

  Firms that use a fixed hourly rate usually do not cost overtime hours at a different rate from regular hours; they either enter the overtime percentage for all employees as 100% (which means overtime hours are not marked up) or they have employees record all hours as regular hours. If you want to cost overtime at a different rate than regular time, you can modify this method by costing hourly employees at the premium rate (usually 150% of his or her regular pay rate).

  Projects with significant amounts of unpaid overtime incur higher labor costs under the Fixed Hourly Rate method, because every hour of labor is costed, even though it is not paid.

• Payrate — Another method for calculating a job cost rate is to use an employee’s payrate as the job cost rate. This method provides a more accurate picture of the cost of salaried labor, because it is based on the actual amounts paid to employees, not on a fixed hourly rate. Some government contracts require that you use this method. If you use this method, you must also use the Adjust Salaried Job Cost feature.

  For an hourly employee, the employee's job cost rate is his or her hourly pay rate. Vision applies this rate to all regular hours worked. You can then use an overtime percentage to mark up overtime hours to reflect any extra amount paid to the employee for overtime work. For a salaried employee, Vision calculates an hourly rate using the following formula:

  Job Cost Rate = Salary for the Payroll Period / Total Hours Worked for the Payroll Period

  If you want to see the number of overtime hours that salaried employees work, even though the employees are not paid for these hours, enter the overtime percentage for salaried employees as 000% and have those employees record regular and overtime hours separately on their timesheets. This allows you to track overtime hours without applying any additional costs to your projects.

  Projects with significant amounts of unpaid overtime do not incur as much labor cost under this method (when compared with the Fixed Hourly Rate method). However, the job cost rate can fluctuate significantly from pay period to pay period — the more hours an employee works in a pay period, the lower the employee’s job cost rate. This fluctuation can make it difficult for project managers to budget labor costs.

• Direct Personnel Expense Rate — If you use direct personnel expense as your job cost rate, you include employee benefits in the labor amounts you cost to projects. Employee benefits then appear as part of direct labor cost on project reports.

  To use the direct personnel expense rate as your job cost rate, you must use a fixed hourly rate as the job cost rate for regular hours worked. You can then either cost overtime hours at the same rate as regular hours by using an overtime markup of 100% for all employees, or use an overtime markup of 000% for salaried employees and 150% for hourly employees who are paid time-and-a-half for overtime.

  For both salaried and hourly employees, Vision calculates the job cost rate using the following formula:

  Job Cost Rate = (Annual Salary + Benefits) / (Total Hours Worked Per Year – Annual Benefit Hours)

  The Direct Personnel Expense Rate method creates an artificially low overhead rate for your firm because it removes all employee benefit costs from the overhead pool.