There are two figures to keep in mind when it comes to labour rates, the internal and external rate per hour.
External Rate/Hour (ERPH)
The external rate/hour (or charge out rate) is the rate that you charge your customer for each hour you work for them. On fixed cost projects, this figure is used in a proposal to calculate the overall labour element of the quote. In a time and materials project, this is used to calculate what you need to bill the customer for any labour carried out.
Internal Rate/Hour (IRPH)
The internal rate/hour is a fixed hourly rate that is applied to the work that each employee carries out on behalf of the company. This rate is multiplied by the number of hours worked on a project by each employee to determine the overall labour cost to the company. You edit the rates in the Financial section of the employee’s record.
The formula used to determine the rates are as follows:
Normal Hours
(Employee’s RPH x (1 + Rate Loading)) + Departmental Loading
Overtime Rate
Employee’s RPH x (1 + Rate Loading)
Example
John’s hourly rate is 30 euros, the departmental loading is 15 euros, and his rate loading is 10%. If John works for five hours on a project, then the cost to the company is:
(30.00 + 3.00 + 15.00) x 5 = 240.00 euros
If John also worked an extra 2 hours overtime on that project that day the following costs would be added:
(36.00 + 3.60) x 2 = 79.20 euros