Calculating overhead multiplier

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There are companies calculating overhead multiplier (OHM) every quarter while others may change it yearly. Different companies have different procedures and policies and, therefore, different ways of handling time entry and billing.

companies calculate OHM and Bill Rate as:

Overhead Multiplier = (Total Expense + Allowance for Bad Debt) / (Direct Project Labor + Direct Project Expense)

Bill Rate = Direct Personnel Expense x (Overhead Multiplier + Profit)

Some government agencies will not allow any allowance for bad debt or marketing and limit profit. Direct Project Labor can be either salary expense or Direct Personnel Expense, depending on your practice or your contracts. Some companies do these calculations from the General Ledger and set up special accounts for Direct Labor and Indirect Labor. They use a simple formula to calculate Overhead Rate:

OHM = Total Indirect Expenses / Total Direct Labor

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