Operations Due Diligence: An M&A Guide for Investors and Business

LABOR RATE CALCULATIONS

Determining the full cost of an employee on a per hour basis can be a complex calculation. Labor rate calculation must be done in a manner that allows the business to determine the true billable cost of a project. Does the employee have an office or use electricity? Probably yes. In that case, what portion of the rent or utility bill is allocated to the project along with the employee labor expense? This is determined by calculating a loaded labor rate that includes the employee base salary plus the overhead expenses that are allocated to it on a per employee, per hour basis.

Labor rates are a combination of an employee’s base salary plus the allocated value of the benefits the employee receives, plus all forms of overhead, ...