Billable Hours Calculation

Administrative Procedure For units measured in cost per hour or other measures of time, productive time and not total hours available should be used in the cost calculation. Productive time is the total time available, less non-billable time for vacation, sick leave, holiday, other forms of leave, breaks, equipment downtime, machine repairs, administration time, education/certification and meetings.

Calculation Typically, there are 40 hours in a work week and 52 weeks in a year. 40 × 52 = 2,080 hours in a year Example: Salary $60,000 per year Fringe for academic faculty (FY18): 33.5% or $20,100 Total salary and fringe for the year: $80,100

Why Billable Hours? The use of billable hours is to recover your costs through the Recharge Center (ISO) the same as if you were direct charging to a grant. eg. 50% grant appointment includes: 50% vacation time 50% administration time 50% sick days

Billable Hours Calculation Total salary and fringe of $80,100 divided by 2,080 working hours in a year: $80,100 ÷ 2,080 = $38.51 per hour ($28.84 / hour salary) ($9.67 / hour fringe) Simple – all done! Right? Not Quite

Billable Hours Calculation People don’t work all 2,080 hours in a year. There are holidays, vacation days, sick days and part of each day devoted to training, documentation, administrative or non- productive time. These hours cannot be directly billed to the customer and therefore the hours cannot be used in the final calculation of billable hours to recover your costs.

? (Repair, Recalibration, Maintenance, Set-up) Billable Hours Calculation Full Year Hours Holiday Vacation Sick Personal Equipment Training / Staff Meetings Travel 15 Min Breaks Per Policy Other Total 2080 (52 weeks x 40 hours per week) - 88 (11 days x 8 hours per day) - 176 (22 days x 8 hours per day) - 40 (5 days x 8 hours per day) -100 (Bereavement, Religious, Medical, Voting, Jury) ? (Repair, Recalibration, Maintenance, Set-up) -192 (Training, Staff Meetings, Admin. Effort Not Billed) -96 (Travel Time Between Meetings During Week) -111 (Two (2) Fifteen Minute Breaks Per Day) -75 (Any Other Absence Not Noted Above) 1202 Labor Rate = Salary and Fringe / Billable Hours Salary and fringe $80,100 Billable Hours 1202 Hourly Rate $66.64

Labor Adjustments Vacation Leave Sick Leave Personal Holiday University Holiday Calendars Parental Leave Family and Medical Leave (FMLA) Medical Leave Faculty Development Leaves (includes Sabbaticals) P&A Professional Development Leaves Personal Leave of Absence Bereavement Leave Religious Holidays Voting & Election Judge Leave Jury Duty & Court Appearance Leave Military Leave School Conference & Activities Leave

Equipment Adjustments Operator Can equipment run without operator Can the operator run multiple equipment at the same time Maintenance as needed Maintenance under a service agreement Repairs Recalibration Replacement Storage time Set-up time Seasonality – operation only during the summer or winter

Billable Hours Calculation • You need to recover all of the salary and fringe expenses of $80,100 $38.51 vs $66.64 The worker will only be available to invoice for 1202 hours, not 2080 • $38.51 X 1202 billable hours = $46,289.02 in revenue At a rate of $38.51, there will be a deficit of $33,810.98

Billable Hours Calculation Why should I care? I’ve always used 2080 hours. If there are 5 people working in this Recharge Center example, the 1150 fund would have a deficit of $169,054.90 before the year’s work even begins because they won’t work enough billable hours to recover all of the costs. ($33,810.98 X 5 = $169,054.90)

EFS Cost Transfer What about transferring costs within EFS? Salary is based on the 2080 hour-year. In order to transfer the correct cost, don’t do the Retro adjustment by total hours, but by a percentage of the billable (available) hours

EFS Cost Transfer Assume worker only billed out for 900 hours: • 900/1202 (billable) = 74.87% 900 x $38.51 would transfer $34,659 Unit billed out 900 x $66.64 = $59,976 revenue UM Report would show a $25,317 surplus Should be for $59,970.87 (74.87% of full salary & fringe) • ($80,100 x .7487 =$59,970.87)

EFS Cost Transfer Example: Employee gets paid for 80 hours in a two-week pay period. Billable hours should be in the same ratio. 1202/2080 = 57.78% In an 80 hour pay period, (all other things being equal) the employee would have 46 hours of billable time. 80 x 57.78% = 46.22 Transfer 46.22 hours at the higher (1202) rate. 46.22 billable hours X $66.64 = $3080.10 (80 paid hours x $38.51=$3080.80)

EFS Cost Transfer Cont. $59,970.87 in salary expense better matches $59,976 billed out for revenue Salary expenses would have been $25,317 short by doing HSA on 2080 rate (showing a surplus) The 5 people in the Recharge Center would total $126,585 in surplus

EFS Cost Transfer Cont. If the actual “billable” hours were close to 900 rather than 1202, 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 invoiced” in order to reduce the variances and especially to reduce deficits that could be recovered through a higher rate.

Billable Hours Calculation

Resources Establishing Internal Sales Rates Related Policy: Selling Goods and Services to University Departments Administrative Procedure Establishing an Internal Sales Accounting Model