Hi,
Our consultant used the yearly salary paid to the employee, divided that by [(52 weeks *37.5 hours) - 10 public holidays - 25 days vacation) to calculate the hourly Defined Cost. Is this correct?
As far as I know, the yearly salary paid by the consultant includes the public holiday and the annual vacation, i.e. the hourly rate they paid their employee is "Salary divide by (52 weeks*37.5 hours).
Therefore, the hourly Define Cost should follow the actual cost they pay to their employee. Am I correct?
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The âactualâ cost for a person should be based on the âcost to employâ, which would include all Employer related costs, such as any Employer taxation (National Insurance in UK) and other benefits, including insurances, pension, provision of âequipmentâ (vehicle) etc.
It depends on how you structure the âcaptureâ of Defined Cost and whether you âpayâ for time spent not working for people who are on a project, as to whether you deduct certain components (public / bank holidays and annual leave / other leave) to calculate an hourly rate. Your contract may provide details as to how this is done, including hours worked, whether overtime may be charged etc.
By using the word âconsultantâ I assume this is a PSC form of contract, although the principles would apply to other appropriate forms. For the PSC the People cost would not include any amount relating to expenses, which is dealt with separately, as detailed in Contract Data part 2.
Thanks Andrew.
Yes, it is the PSC form of the contract.
I acknowledge the need to account for all employer-related costs, meaning the total annual expense for the consultant will be âsalary + payroll overhead (pension, taxes, and insurance).â
However, Iâm unclear whether holiday and public holidays should be deducted from the total annual working days when calculating the hourly rate.
Regarding âtotal time recordedâ in the SOCC clause 11, I understand that the consultantâs employees record the time spent on holiday and public holidays in their timesheets. Does this imply that the total time recorded includes both holiday and public holiday hours? Thus, the hourly rate should be calculated as
(salary + payroll overhead)/(52 weeks *37.5 weekly working hours)
Without deducting any holidays or public holidays in the calculation.
If you didnât make an allowance for any non-working time in the rate then it would have to be included in the fee percentage, which would be significant as it would need to include ALL non-working days, including weekends.
Consequently it is usual to calculate a gross annual cost and âconvertâ to the number of working days a year (say 220) by adjusting for a 220 day working year, so from your example (salary + payroll overhead)/(220*7.5) which would give an hourly rate. This would then âaccrueâ an allowance for non-working time when time is recorded for work on the contract.
It is common for contracts to provide supplementary notes and / or guidance on the application of the SoCC components, to avoid any interpretation issues, although this doesnât seem to be the case in your situation.
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