Financial Management for Small Architectural Firms with business budget examples, tips, and terminology. Learn how to create an effecient profit plan.
Are You Overpaying Your Employees?
Are You Overpaying Your Employees? - BQE Software
Have you ever wondered if you are paying your employees less than they deserve? Or are you cutting your profits by paying them more than they should get? An even bigger and more important question is how do you measure your staff’s productivity and value?
Knowing the utilization or efficiency of your employees can help gauge how productive and valuable they are. On an average, your employees must be more than 70% efficient at work. ArchiOffice provides exactly that information on its Preferences > Users > Performance screen, as well as in the Time and Expense > Employee Performance report.
There are some specific terms you need to know and calculate before you go ahead with your new mission. Also, remember that this Efficiency or Utilization Rate looks at the billable or chargeable hours of your employees.
Pay Rate = Annual Salary / Total Standard Working Hours
Overhead Multiplier = Total Year Expenses / Total Payroll
Cost Rate Multiplier = Overhead Multiplier + 1
These will help you calculate the important rates:
Bill Rate = Pay Rate x Cost Rate Multiplier x Profit %
Effective Bill Rate = Bill Rate x Utilization Rate
Max Pay Rate = Effective Bill Rate / Cost Rate Multiplier
Ideal Pay Rate = Max Pay Rate / Profit %
Here’s an example:
Let us illustrate this with an example of a company, Fountainhead A+E. It has an Overhead Multiplier of 1.75 and aims for a profit of 20%. Now, let’s take a look at the ideal pay rate for an employee named Henry Cameron who is earning a yearly salary of $75,000 with a utilization of 82.5%:
Pay Rate = 75,000 / 2080 = $36/hour
Cost Rate Multiplier = 1.75 + 1.0 = 2.75
Bill Rate = 36 x 2.75 x 1.2 = $120/hour
Effective Bill Rate = 120 x 82.50 / 100 = $100/hour
Max Pay Rate = 100 / 2.75 = $36/hour
Ideal Pay Rate = 36 / 1.2 = $30/hour
The above calculations make it clear that you have been over-paying this employee. In other words, paying this employee $36/hour means your company is not making the desired 20% profit; in fact, you’re actually hosting this employee in your company because he’s not contributing profitably.
Use ArchiOffice to calculate staff efficiency:
So get going! Time to do some calculations on your end and see for yourselves how efficient your staff is. We highly recommend that you do this quarterly or at least at year-end for your entire staff.
To learn more about ArchiOffice or schedule a walk-through demonstration today, please call us at (855) 687-1028 or email us at email@example.com