Rent, utilities, insurance, software, admin salaries, etc.
Total wages paid to all billable employees.
The base salary of the specific employee you are analyzing.
Standard full-time is usually 2080 hours.
Overhead Rate:0%
Overhead Allocation (Per Employee):$0.00
Total "True" Cost of Employee:$0.00
Hourly Cost to Break Even:$0.00
function calculateOverhead() {
// Get input values
var indirectCosts = parseFloat(document.getElementById('totalIndirectCosts').value);
var directLabor = parseFloat(document.getElementById('totalDirectLabor').value);
var employeeSalary = parseFloat(document.getElementById('employeeSalary').value);
var billableHours = parseFloat(document.getElementById('billableHours').value);
// Validation
if (isNaN(indirectCosts) || isNaN(directLabor) || isNaN(employeeSalary) || isNaN(billableHours)) {
alert("Please enter valid numbers in all fields.");
return;
}
if (directLabor <= 0) {
alert("Total Direct Labor Costs must be greater than zero.");
return;
}
if (billableHours <= 0) {
alert("Billable hours must be greater than zero.");
return;
}
// Calculation Logic
// 1. Calculate the Overhead Rate Percentage
// Formula: Total Indirect Costs / Total Direct Labor Costs
var overheadRateDecimal = indirectCosts / directLabor;
var overheadRatePercent = overheadRateDecimal * 100;
// 2. Calculate Overhead Allocation for the specific employee
// Formula: Employee Salary * Overhead Rate
var allocationAmount = employeeSalary * overheadRateDecimal;
// 3. Calculate Total True Cost
// Formula: Salary + Allocation
var totalTrueCost = employeeSalary + allocationAmount;
// 4. Calculate Hourly Break-even
// Formula: Total True Cost / Billable Hours
var hourlyBreakEven = totalTrueCost / billableHours;
// Display Results
document.getElementById('resRate').innerHTML = overheadRatePercent.toFixed(2) + "%";
document.getElementById('resAllocation').innerHTML = "$" + allocationAmount.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTotalCost').innerHTML = "$" + totalTrueCost.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resHourly').innerHTML = "$" + hourlyBreakEven.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Show result div
document.getElementById('calcResult').style.display = 'block';
}
How to Calculate Overhead Rate per Employee
Understanding the true cost of your workforce is essential for accurate pricing, budgeting, and profitability analysis. While an employee's salary is the most visible cost, it is rarely the only expense. The overhead rate per employee helps business owners allocate indirect costs—such as rent, utilities, and administrative support—to specific employees to determine how much revenue they must generate to break even.
What is the Overhead Rate?
The overhead rate is a percentage that represents the ratio of indirect costs to direct costs (usually direct labor). It tells you how much money you spend on support infrastructure for every dollar you spend on direct labor.
For example, an overhead rate of 1.5 (or 150%) means that for every $1 paid in salary to a billable employee, the company spends an additional $1.50 on overhead expenses.
The Formula
To calculate the overhead rate, you first need to categorize your expenses into Indirect Costs (Overhead) and Direct Costs (Labor). The standard formula is:
Overhead Rate = Total Indirect Costs / Total Direct Labor Costs
To find the specific cost burden for a single employee, you apply this rate to their salary:
Sum up all expenses that are not directly tied to producing a specific product or service. This typically includes:
Rent and facility maintenance
Utilities (electricity, internet, water)
General insurance policies
Administrative and HR salaries
Office supplies and software subscriptions
Marketing and advertising costs
2. Calculate Total Direct Labor Costs
Sum up the gross wages and salaries of all employees who work directly on billable projects or production. Do not include administrative staff here, as they are part of the indirect costs.
3. Determine the Rate
Divide the total indirect costs by the total direct labor costs. Multiply by 100 to get a percentage.
Example Calculation
Let's say your engineering firm has the following annual financials:
Total Indirect Costs: $200,000 (Rent, Admin, Software)
Total Direct Labor: $500,000 (Wages for 5 engineers)
Overhead Rate: $200,000 / $500,000 = 0.40 or 40%.
If you hire a new engineer with a salary of $80,000:
Allocated Overhead: $80,000 × 40% = $32,000
True Cost to Company: $80,000 + $32,000 = $112,000
Why is This Important?
If you bill your clients based solely on the employee's hourly wage, you will lose money. Using the example above, if the engineer works 2,000 hours a year, their hourly wage is $40 ($80k/2000). However, the break-even cost is actually $56/hour ($112k/2000).
Use the calculator above to ensure your pricing models cover both the employee's salary and their share of the company's overhead.