University of Minnesota

Internal Sales

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

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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?

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

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Billable Hours Calculation

Full Year Hours 2080(52 weeks * 40 hours per week)Holiday -88(11 days * 8 hours per day)Vacation -108(13 days * 8 hours per day)Sick -80(10 days * 8 hours per day)Total Working Hours 1804 225.5working days (working hours/8 hours per day)

Training / administrative / non-productive hours 220(1 hour per day)Billable Hours 1584

Labor Rate = Salary & fringe / billable hoursSalary & fringe $ 80,160 Billable Hours 1584Hourly Rate $ 50.61

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 full salary & fringe

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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 out11

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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