Appendix A
COSTS OF PROFESSIONAL
SERVICES
The cost of Professional Services is commonly expressed as a function
of a Consultant's operating costs. This Appendix describes the components
that comprise a Consultant's Time Billing Rate, payroll factors, example
of hourly billing calculations, and a formula which can be applied
for determining the costs of Professional Services.
1. TIME BILLING RATES
Time Billing Rates are comprised of three basic elements; direct
payroll costs, overhead costs, and profit. For purposes of uniformity
and practical use, they should be based upon actual payroll costs
with a payroll multiplier factor to cover overhead and profit.
1.1 Direct Payroll Cost
This element of costs relates to the payroll and disbursements incurred
by staff while engaged on an assignment which are chargeable directly
to the project.
1. Daily Rate Payroll Cost
Fringe Benefits including annual vacation and statutory holidays
are typically 20% to 30% of salary. The actual cost of fringe benefits
and the actual annual working days or hours should be used to calculate
payroll costs. They include the employers share of:
• UIC charge*
• Workers' Compensation levies*
• Statutory holiday provisions (currently 4%)*
• Canada Pension* and Company Pension
• Vacation pay*
• Medical and Hospitalization insurance
• Life, Dental, and other insurance premiums
• Sick leave provisions and compassionate leave
* Required by Government
4. Disbursements
These costs are those incurred by staff engaged on an assignment
and are chargeable directly to the project as described in Section
4.
1.2 Overhead Costs
This category of cost relates to the general operation and maintenance
of a Professional Practice which is not chargeable directly to the
project.
1. Physical Plant may include:
• office rental
• furnishings
• usual tools and equipment (excluding specialized equipment
covered by negotiated rates)
• switchboard, telephones, fax, etc.
• typewriters, word processing equipment, copiers, etc.
2. Operating Costs may include:
• financing
• business and professional licenses
• professional and general business insurance
• stationery and office supplies
• technical library and periodicals
• staff recruitment and training
• audit and legal fees
• bad debts
• administrative salaries
• accountants and clerks
• receptionists
• librarians
• secretaries whose time is not directly chargeable to Client
projects
• non-chargeable time by professional and technical staff in
updating procedures, attending technical seminars, and other activities
which are not chargeable to projects
• business development
Overhead Costs will vary according to the size of an operation,
the office location, and the nature of the services provided. Some
of the overhead elements may be included in negotiations as reimbursable
categories. In these situations, a lower payroll factor could be
negotiated.
1.3 Profit
Profit is the balance, after direct costs and overhead costs are
deducted from the total revenue, prior to the payment of taxes,
dividends and bonuses.
Clients should expect to pay fees that provide a profit to Consultants
in return for competent and efficient services from these Consultants.
The level of profit on a specific project would reflect a Consultant's
technical and management skills, efficiency, and exposure to risk
for that project. Recovery of this profit would be incorporated
in the Payroll Multiplier Factor, so described in Section 2 of Appendix
A.
2. PAYROLL FACTOR
A payroll multiplier is the means by which overhead costs and profit
are recovered from billing. This factor will vary according to the
conditions which affect the efficiency of an organization or which
affect the overhead costs directly.
Typically, Overhead and Operating Costs are approximately equal to
Payroll Costs (Salary + Fringe Benefits) incurred by staff engaged
on an assignment.
Based upon cost records for projects with varying manhours, APEGGA
believes a Payroll Multiplier Factor of 2.0 to 2.5 is required to
sustain a mature and competent consulting practice. In circumstances
where some of the overhead items are provided by the Client or where
contract employees are utilized, the Payroll Factor should be negotiated
to account for potentially reduced overhead costs.
3. EXAMPLE HOURLY RATE CALCULATIONS
(Based on selected annual salaries and assumed annual working hours
and fringe benefits)
|
Position
|
**
Annual
Salary
($/yr)
|
***
Hourly
Payroll
Cost
($/hr)
|
Hourly Billing Rate
at Payroll Cost Factors:
|
|
*
Responsibility Level
|
Typical
Title
|
Typical
Experience
|
2.0
($/hr)
|
2.5
($/hr)
|
|
B
|
Junior
Geologist/
Geophysicist
|
2-5 yrs
|
46,800
to
48,300
|
30
to
31
|
60
to
61
|
75
to
77
|
|
C
|
Geologist/
Geophysicist
|
4-10 yrs
|
57,360
to
60,700
|
37
to
39
|
73
to
77
|
92
to
97
|
|
D,E
|
Senior
Geologist/
Geophysicist
|
10 + yrs
|
72,792
to
90,600
|
46
to
58
|
93
to
116
|
116
to
145
|
| |
Principal
****
|
Hourly
billing rates will vary according to this individual's qualifications
and level of experience. They should reflect the additional
responsibility the Principal carries. |