University of Minnesota Internal Sales Billable Hours Calculation

1. University of Minnesota Internal Sales Billable Hours Calculation

2. BILLABLE HOURS CALCULATION 2 Typically, there are 40 hours in a work week and 52 weeks in a year. • 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

3. 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? 3

4. Billable Hours Calculation 4 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.

5. Billable Hours Calculation 5

6. 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)

7. 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)

8. 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.

9. 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

10. 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

11. 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

12. 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.