Calculating an Employee's Hourly Rate
In Costlocker, we have two ways of calculating project costs based on hours worked => fixed rate => monthly rate Each has its own specifics, advantages, and disadvantages. We'll read about the differences below.
Types of Hourly Rate Calculations
Fixed Rate
As the name suggests, a fixed rate sets the hourly rate for a person when creating a project, and without our manual intervention, the rate will not change with each new month. The advantage is its stability and consistency - hence the name fixed rate. The disadvantage, on the other hand, is that in this mode, discrepancies will arise between the project's total costs and the costs allocated to projects - described in more detail below in Discrepancies in Cost Allocation with Fixed Rate.
Monthly Rate
When setting a monthly rate, the exact hourly rate is calculated only after the month ends. Subsequently, it is recalculated with any changes to ensure the most accurate results. The disadvantage is that the project's profitability can retrospectively change even after its completion.
How is the Hourly Rate Calculated
As mentioned above, the calculation differs in each cost mode:
Fixed Rate
With a fixed rate, an hourly rate is set for the project, i.e., the cost for a person depending on their salary settings.
Person Paid by Hourly Rate
An hourly rate set by the person as valid on the 1st day of the month when the project starts is assigned to the project.
Person Paid by Monthly Salary
An hourly rate based on the salary the person has as of the 1st day of the month when the project starts is assigned to the project. The hourly rate is calculated as
This salary remains unchanged regardless of the number of hours the person works.
You can change the hourly rate for any person at the project level in the Rates tab.
If you have a multi-month project during which a person's salary changes, with a Fixed Rate this change will no longer be reflected during the months.
Discrepancies in Cost Allocation with Fixed Rate
Because the hourly rate is calculated based on workload and not on actual hours worked, if a person works fewer hours than their workload, the total project costs will not match the salary costs.
Example:
Martina has a monthly salary 64,000 CZK with a workload of 160 hours. Thus, the hourly rate will be 64,000 / 160 = 400 CZK / hour.
If Martina, however, tracks only 140 hours in that month, the total project costs for Martina's work will be: 140 hours * 400 CZK/hour = 56,000 CZK.
This results in a discrepancy of 8,000 CZK compared to her total salary, which will not be allocated into projects. This issue is addressed by using the Monthly Rate.
Monthly Rate
During the current month, the project behaves the same as if it had a Fixed Rate. After the month ends, the data begins to be calculated differently, based on the actual hours worked.
Person Paid by Hourly Rate
For employees paid by an hourly rate, bonuses (if any) are additionally added to the hourly rate. For illustration, let's provide an example:
In July:
Tomáš, hourly rate 400 CZK, received a bonus of 20,000 CZK and worked 100 hours.
The hourly rate added to Tomáš's rate for July will consist of two parts:
The hourly rate of 400 CZK
The bonus allocated per hour - thus 20,000 CZK / 100 hours = 200 CZK/hour.
Tomáš's hourly rate for projects in July will be 600 CZK.
Person Paid by Monthly Salary
For employees paid by a monthly salary, we allocate the entire salary including bonuses to all hours worked.
Let's provide another example, also in July:
Martina has a monthly salary 64,000 CZK with a workload of 150 hours, additionally received a bonus of 16,000 CZK and worked a total of 160 hours that month.
In July, Martina's project rate will be 426.67 CZK, based on the calculation:
After the month ends, the rate is calculated including bonuses and based on the actual hours worked, i.e.:
The hourly rate is always accurately calculated based on the total cost of the person.
If you have a multi-month project during which a person's salary changes, with a Monthly Rate the rate will always be accurately recalculated.
If you change a person's number of worked hours, salary, or bonus in the history, you can have all metrics related to this person recalculated for historical data.
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