HomeMy WebLinkAbout101-Billing rate formula.pdf
SARATOGA CITY COUNCIL
MEETING DATE: January 21, 2009 AGENDA ITEM:
DEPARTMENT: Finance & Administrative Services CITY MANAGER: Dave Anderson
PREPARED BY: Mary Furey DIRECTOR: Mary Furey
SUBJECT: Establish billing rate formula for calculating staff’s annual hourly billing rates
RECOMMENDED ACTION:
Adopt resolution to establish a billing rate formula for calculating annual hourly billing rates for City
staff, inclusive of salary, benefits, and overhead.
REPORT SUMMARY:
On an intermittent basis, the City provides staff time for requested services or events for other
organizations and private parties. Staff time is also charged for various planning, research, and
administrative requests, and for maintenance services for insurance claims to recover costs for time spent
to repair damages caused by accidents or vandalism.
For these purposes, staff had established a basic billing rate methodology using a staff member’s current
annual pay plus annual benefits divided by total annual staff hours (2080 per year). This straight-forward
calculation has been used at Saratoga for years, however, because this method accounts only for the direct
pay-rate cost of staff time, it results in establishing billing rates at less than full cost-recovery.
To more accurately obtain cost recovery for staff time, several adjustments to the current methodology are
required, involving both staff hours and associated staff costs used in the billing rate calculation.
In determining a cost recovery billing rate, the amount of staff hours used in the billing rate calculation is
adjusted to available/productive hours. Staff recommends setting the available/productive hours for the
calculation by reducing total annual hours from 2080 (which represents 40 hours x 52 weeks) to 1760
hours to account for paid holidays (104 hours), vacation & sick leave (176 hours), and for training time
(40 hours) that is part of an employee’s annual cost. As an example, if the City were to rent out an
employee for a year to another organization using 2080 hours in our billing rate calculation, we would not
recover the employee’s full salary and benefit cost from the actual hours we billed to the other
organization during the year. Whereas, if the billing rate hour factor is adjusted to the approximate 1760
hours the employee is available to work, the City would recover the salary and benefit cost of the
employee over the year.
In addition to direct costs for staff (salary and employer paid benefits and taxes), the City incurs indirect
costs related to City management, administration, and operational costs. These indirect costs, commonly
known as overhead, exist to support staff services, and are a part of the cost of doing business. In
determining a cost recovery billing rate, overhead costs are converted into an overhead rate in order to
distribute the operational support costs to direct costs on a pro-rated basis.
The annual overhead rate would be calculated with total administrative costs expressed as a percentage of
total General Fund expenditures (excluding non-operational one-time expenditures and transfers from the
calculation). Administrative costs would include General Fund program expenses for the City Manager’s
Department, the Finance program in the Administrative Services Department, and the General
Administration and Legal programs in the Non-Departmental section. As these programs all incorporate
their proportional share of facility maintenance, insurance costs, IT support, and equipment replacement
costs through internal service charges, the Internal Service programs are not included in the overhead
calculation. Using the prior year’s audited financial statements, Finance will calculate the City’s annual
overhead rate to establish annual billing rates, and for use in updating fees in the annual Master Fee
schedule each spring.
In short, the overhead rate calculation is proposed to be as follows:
1) the sum of the General Fund expenditures of the City Manager’s Department, the Finance &
Administrative Services Department, and the General Administrative and Legal programs in the
Non-Departmental section,
2) divided by the sum of the General Fund expenditures (net of one-time costs and transfers),
3) expressed as a percentage
The overhead rate percentage would then be applied to the direct costs in the hourly billing rate formula.
As calculated above, the overhead rate based on the FY 2007/08 audited financial statements is 18.4%.
Because the City’s General Fund programs operate at basic service levels, this methodology provides a
fair, reasonable, and defensible overhead rate, and is low as compared to business overhead rates as the
City provides services under a cost recovery methodology, not for profit.
After determining the annual overhead rate factor, a staff position’s hourly billing rate is therefore
proposed to be a calculation of:
1) the annual salary cost set at the top step of the pay range,
2) plus the annual cost of employer paid benefits and taxes,
3) with the sum of the two divided by productive staff hours (1760 hours per year),
4) plus the overhead amount calculated at the established overhead rate.
The billing rate formula established in this format is expected to adapt to economic fluctuations and
ensure hourly billing rates are established at cost-recovery rates on an annual basis. For part-time
positions, the above calculation would be adjusted.
FISCAL IMPACTS:
Staff billing rates will be established at cost recovery rates, allowing the City to recover the full costs for
providing services.
CONSEQUENCES OF NOT FOLLOWING RECOMMENDED ACTION:
Staff billing rates would not be based on cost recovery rates; therefore the City would not recover costs
for provided services.
ALTERNATIVE ACTION:
A billing rate formula using different factors/methodology could be adopted.
FOLLOW UP ACTION:
Establish annual billing rates for city-wide use, and utilize billing rate calculation in determining fees
established in the Annual Fee Schedule
ATTACHMENTS:
Attachment A – Resolution 2009-____
To establish a billing rate formula to calculate the hourly cost of City staff, inclusive of salary, employer
paid benefits and taxes, and overhead.
Attachment A
RESOLUTION NO. 2009-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SARATOGA
WHEREAS, the City Council of the City of Saratoga wishes to adopt a fair, reasonable, and
standardized methodology for establishing cost recovery billing rates; and
WHEREAS, the City Council of the City of Saratoga has determined the following overhead rate
for the billing rate formula as stated below to be fair and reasonable;
The overhead rate for billing rate purposes is established as:
1) the sum of the General Fund expenditures of the City Manager’s Department, the
Finance & Administrative Services Department, and the General Administrative and
Legal programs in the Non-Departmental section,
2) divided by the sum of the General Fund expenditures (net of one-time and transfers),
3) expressed as a percentage; and
WHEREAS, the City Council of the City of Saratoga has determined the following billing rate
formula as stated below to provide for cost recovery;
A staff position’s hourly billing rate is established as:
1) the annual salary cost set at the top step of the pay range,
2) plus the annual cost of employer paid benefits and taxes,
3) with the sum of the two divided by productive staff hours (1760 hours per year),
4) plus the overhead amount calculated at the annual overhead rate.
* Part time positions are calculated on a pro-rated basis
NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of Saratoga hereby
resolves to adopt the following overhead and billing rate formula methodologies for use in establishing
billing rates, and to be updated on an annual basis as follows;
The above and foregoing resolution was passed and adopted at a regular meeting of the Saratoga City
Council held on the 21st day of January, 2009 by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
______________________________
Chuck Page, Mayor
ATTEST:
_____________________________
Ann Sullivan, City Clerk