Professional services · two-minute check

What does a fee-earner's hour really cost you?

Take one fee-earner. Load the salary with on-costs, leave, the time that cannot be billed and the time you write off, and see what a productive hour really costs. Then whether your rate card covers it with anything left.

The person

Base salary

On-costs

On-costs: super, payroll tax, workers comp, leave loading. About 19% for most Australian firms; more if you provide parental leave above the statutory scheme.

Paid days not worked 30 days

Annual leave, public holidays, sick and personal leave actually taken. 20 + 10 + a few is typical; 260 weekdays minus this is the working year.

Share of worked time that is billable 72%

The rest is proposals, training, admin, internal meetings and bench. A third unbilled is normal; a fifth is very good.

Written off before invoicing 5%

Hours recorded as billable that never reach an invoice. Most firms guess low; the timesheet system knows.

Your rate card for this person

Hourly charge rate

Day rate equivalent

Day rate is 7.6 hours. Overhead at 15% of revenue and a 20% margin are assumed when working out the rate you would need.

Salary per hour

$76

the number everyone uses

Effective cost

$149

1.97× salary · per productive hour

Rate you need

$230

$1,746 a day

Cost per hour, built up layer by layer. The marker is your card rate; the dashed line is the rate you would need for a 20% margin after 15% overhead.

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Method: salary plus on-costs, spread over the hours actually worked (260 weekdays less paid days off, at 7.6 hours), then over the share of those hours that are billable, then over the share that survives to an invoice. The rate you would need assumes overhead of 15% and a margin of 20%, both as a share of revenue. General information only, not financial advice. Steve Green, CA.