Determining a Billing Rate

Effective Date: 7/1/2023

Overview and Background

A billing rate is an hourly rate used to charge staff time to BWSR grants.  It consists of the employee’s base hourly rate plus the costs of benefits, leave, and facilities; and administration costs necessary to keep a person employed and an office running.  Billing rates can be an efficient method for charging costs to BWSR grants.  By including costs in the staff time that is directly charged, the billing rate method automatically allocates those costs to the grants that should bear them.

Longstanding federal grant guidance classifies overhead costs into two broad categories:  facilities and administration.   As defined in the Code of Federal Regulations (2 Code of Federal Regulations, §200.414), facilities includes operations and maintenance costs such as insurance, rent, and utilities.  Administration includes general administrative costs such as accounting/finance, clerical support, human resources, and management. 

A proportionate share of direct and necessary administrative costs may be charged to BWSR grants.  To factor the cost of administration in a billing rate, BWSR recommends using one of the following methods:

Option 1.  Add 10% for facilities and administration costs to the modified base rate for each employee. The modified base rate includes wages, benefits, and leave. Costs in excess of normal facilities costs specific to achieving grant funded outcomes can be charged directly to grants.

Option 2.  Add 10% of the total workable hours for the organization in a year as general administrative time to the billing rate calculation. To use this option, the hours added must be documented as general administration and cannot also be charged to grants and can come only from administrative staff within the department where work on the grant is being done. The definition of administrative staff must be consistent with the organization of the grantee. For example, in some smaller organizations, technical staff may also perform administrative functions.  In organizations such as larger cities or counties, the general administrative hours can only come from administrative staff within the department where work on the grant is being done. For time tracking methods, see Time and Effort Documentation Guidance and Examples in this manual.

Option 3.  Apply the organization’s federally negotiated indirect cost rate to the staff costs of the program or project funded by BWSR grants. Federal indirect costs rates may be obtained from the cognizant federal agency responsible for reviewing, negotiating, and approving indirect cost proposals.
 

Grantees are not required to charge facilities and administration costs to BWSR grants through a billing rate.  If costs are needed, reasonable, consistently applied, and rationally allocated, grant recipients may still charge all allowable costs to BWSR grants directly.  Costs directly charged cannot also be included in the billing rate calculations.

Grant recipients may include allowances or additions consistent with this policy and guidelines in the billing rates they use to charge staff time to BWSR grants.  Allowances or additions to billing rates inconsistent with these guidelines will be disallowed from BWSR grants.

Additional Requirements for Billing Rates

• Facilities costs must be based on actual costs, as reported in the previous 12 months financial reports.
• Hours documented as general administrative time must be based on actual (and documented in time sheets).
• Hours documented for sick leave, holidays, or vacation must be based on actual, whether used (and documented in time sheets) or accrued.  See the FAQ on accrued leave for more information.
• Billing rates must be calculated for each employee.  Billing rates rounded per employee category, or a single rate as the average rate for all employees of the grantee, are not allowed.
• Billing rates should be evaluated annually but may be recalculated more often to reflect changes in costs or employees.

Two spreadsheet templates are provided in this manual to assist grantees in calculating billing rates using Options 1 and 2. The templates are provided as examples only; grantees are not required to use them.  The templates include:

• Option 1: How to Calculate Billing Rates Using MBR + 10%
• Option 2: How to Calculate Billing Rates Including Overhead Costs of Facilities and Administration

Correct formulas are built into the templates.  A grantee need only input the figures highlighted, using actual costs from their previous 12 months financial statements, and billing rates that recover all allowable costs will result.  BWSR may use this template to verify a grantee’s own calculations. The formulas are also described and illustrated with examples below.

Example 1: Option 1

Option 1 (xlsx) adds 10% of an employee’s modified base rate to the modified base rate to factor the costs of facilities and administration.  The “modified base rate” includes wages, benefits, and leave.

If an employee’s modified base rate is $25.00/hour, for example, a grantee is allowed to charge a rate of $27.50/hour ($25.00 + $2.50) to BWSR grants.  The additional $2.50 per hour accounts for some of the employee’s share of facilities and administration costs.

• The formula for calculating a modified base rate is: (Wages + Benefits / Workable Hours) + (Cost of Leave / Hours Actually Worked)
• The formula for calculating a billing rate using Option 1 is: Billing Rate (allowing for facilities and administration) = Modified Base Rate + (.10 *Modified Base Rate)

Example 2: Option 2

Option 2: 1-9 employees Excel spreadsheet (xlsx) or Option 2: 1-25 employees Excel spreadsheet (xlsx) factors the costs of facilities and administration in the billing rate.  This example illustrates a staff of three employees: district manager, conservation technician, and administrative assistant. The elements of a billing rate are wages, benefits, leave, and facilities and administration.

Table 1: Sample Employee Wages for Current Year

Table 2: Sample Benefits for Current Year

Table 3: Sample Expenses for Previous 12 Months Financial Reports

The software licenses and field supplies in this example valued at $2,400.00 are specific to a program project and therefore directly charged to the program or project grant they are applicable to and are not included in the billing rate calculation.  The total facilities costs included in the calculation are $20,636.51.

Wage is factored as an hourly base rate. To calculate an hourly base rate, divide an employee’s annual wages by the workable hours in a year.  For each full-time equivalent employee (FTE), workable hours = 2088.

Benefits are specific to each employee. To factor the cost of benefits, divide the employer’s portion of the employee’s benefits by the workable hours in a year.

Note that the Legislative Coordinating Commission calculates FTEs based on a denominator of 2,088 workable hours in a year.  See Minnesota Statutes 2015, section 3.303, subdivision 10.

Table 4: Calculation of Base Rates

Table 5: Calculation of the Cost of Benefits

To factor the costs of leave, facilities, and administration, a different denominator of “hours actually worked” is used.  Hours actually worked = workable hours minus paid sick leave, holidays, and vacation or PTO.

Table 6: Calculation of the Workable Hours and Hours Actually Worked

Leave for each employee. To factor the cost of leave, multiply the actual number of paid leave hours by the employee’s base rate plus benefits, then divide the total by the hours actually worked by that employee.

Table 7: Calculation of the Cost of Leave

Facilities and administration are shared expenses.  Each employee bears an equal share of the costs. To factor the cost of facilities, divide the total cost of facilities for the grantee by the total hours actually worked by all employees of the grantee.

Table 8: Calculation of the Cost of Facilities

To factor the cost of administration, up to 10% of the total workable hours for the grantee may be added to the billing rate calculation. In the example of three full-time employees, the total workable hours = 6,264, so the administrative hours allowed = 626.  These hours are distributed to the administrative staff of the grantee—the district manager and the administrative assistant—and valued at a rate that includes wages, benefits, leave, and the cost for facilities.

To factor the cost of administration, divide the total cost of allowed administration by the total hours actually worked, minus the hours allowed for administration.

Table 9: Documented Administration Hours

Table 10: Calculation of the Cost of Administration

These calculations result in the following billing rates:

Table 11: Billing Rate Calculations Summarized

Summary

Costs charged to BWSR grants must be direct and necessary to produce the outcomes funded by the grant.  In general, if you can associate a cost with a specific grant, you should directly charge it to that grant.  If a cost supports more than one grant, you should include it in your billing rate calculations or allocate it consistently across two or more applicable grants.  If a cost supports many grants or programs, include it in the billing rate calculations.  Costs direct charged cannot also be included in any billing rate calculation.  If you are unsure of how to charge a cost to a BWSR grant or whether a cost is allowable at all, consult with your Grants Compliance Specialist or Board Conservationist.  Whatever you directly charge to the grant must be itemized and documented.