Transcript Billable Hours

University of Minnesota
Internal Sales
Billable Hours Calculation
BILLABLE HOURS CALCULATION
Typically, there are 40 hours in a work week and 52
weeks in a year.
40 X 52 = 2,080 hours in a year
Example: Salary $60,000 per year
Fringe for academic faculty (FY14)
33.6% or $20,160
Total salary & fringe for the year $80,160
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Billable Hours Calculation
So, total salary & fringe of $80,160 divided by 2,080 working
hours in a year:
$80,160 / 2,080 = $38.54 per hour ($28.85/hour salary)
($9.69/hour fringe)
Simple – All done
Right?
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Billable Hours Calculation
Not quite.
Typically, people don’t work all 2080 hours in a year.
There are holidays, vacation days, sick days and part of each
day devoted to training, administrative or non-productive
time.
These hours cannot be counted on to bill back the customer and
therefore these hours cannot be used in the calculation to
recover your costs.
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Billable Hours Calculation
Full Year Hours
Holiday
Vacation
Sick
Total Working Hours
2080 (52 weeks * 40 hours per week)
-88 (11 days * 8 hours per day)
-108 (13 days * 8 hours per day)
-80 (10 days * 8 hours per day)
1804
225.5 working days (working hours/8 hours per day)
Training / administrative /
non-productive hours
Billable Hours
220 (1 hour per day)
1584
Labor Rate = Salary & fringe / billable hours
Salary & fringe $ 80,160
Billable Hours
1584
Hourly Rate
$
50.61
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Billable Hours Calculation
• $38.54 vs $50.61
• The worker will only be available to work
1584 hours, not 2080
• $38.54 X 1584 billable hours = $61,047.36
in revenue
• You need to recover all of the salary and
fringe expenses of $80,160
• At a rate of $38.54, there will be a deficit of
$19,113 (short $12.07/hour X 1584 hours)
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Billable Hours Calculation
• Why should I care? I’ve always used 2080
hours.
If there are 5 people working in this ISO
department example, the 1150 fund would
have a deficit of $95,565 before the year’s
work even begins because they won’t work
enough billable hours to recover all of the
costs. ($19,113 X 5 = $95,565)
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EFS Cost Transfer
• What about transferring costs within EFS?
• EFS bases the rate on the 2080 hour-year.
• In order to transfer the correct cost, don’t
transfer by hours, but by a percentage of the
appointment.
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EFS Cost Transfer Cont.
• Assume worker billed out for 1200 hours:
• 1200/1584 (billable) = 75.757%
• In EFS 1200 x $38.54 would transfer
$46,248 ($34,620 salary + $11,628 fringe)
• Unit billed out 1200 x $50.61 = $60,732
revenue
• UM Report would show a $14,484 surplus
• Transfer 75.757% of 9full salary & fringe
EFS Cost Transfer Cont.
• .75757 x $80,160 = $60,726.81
• $60,726.81 expense transferred vs $60,732
billed out for revenue
• Expenses would have been $14,484 short by
transferring only hours (showing a surplus)
• For 5 people in the ISO would total $72,420
surplus
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EFS Cost Transfer Cont.
• If you automatically transfer the full 100%
cost in EFS for the person in the ISO:
• $80,160 in cost transferred for salary &
fringe expense
• $60,732 billed out in revenue
• $19,428 short in revenue. Why?
• 1584 planned hours less 1200 actual = 384
• 384 X $50.61 = $19,434.24
not billed out
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EFS Cost Transfer Cont.
• If the actual “billable” hours were close to
1200 rather than 1584, then next year’s rate
would be set higher to recover more
revenue with less hours.
• Base the rate on actual “billable” or historic
hours in order to reduce the variances.
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