Government Contractor Wrap Rate Calculator
Understanding Government Contract Wrap Rates
For federal contractors, the "Wrap Rate" is one of the most critical financial metrics. It represents the multiplier applied to direct labor costs to cover all indirect expenses and profit. Understanding your wrap rate is essential for competitive bidding on DCAA (Defense Contract Audit Agency) regulated contracts.
The Components of a Wrap Rate
A standard government wrap rate is typically composed of four primary layers:
- Fringe Benefits: Costs related to the employee, such as payroll taxes (FICA, SUTA), health insurance, 401(k) contributions, and paid time off (PTO).
- Overhead (OH): Expenses that support the direct labor but aren't specific to the entire company, such as project management, office space for a specific contract site, and specialized equipment.
- General and Administrative (G&A): The cost of running the corporate entity, including executive salaries, HR, accounting, legal, and business development.
- Profit/Fee: The percentage added on top of all costs to ensure company growth and sustainability.
Realistic Example Calculation
Imagine an IT consultant with a Base Salary of $50.00/hr.
- Fringe: 35%
- Overhead: 15%
- G&A: 10%
- Profit: 8%
The math follows a cascading multiplier effect: 1.35 (Fringe) × 1.15 (OH) × 1.10 (G&A) × 1.08 (Fee) = 1.846 Wrap Rate.
Fully Burdened Bill Rate: $50.00 × 1.846 = $92.30/hr.
Why the Calculation Logic Matters
Contractors must be careful with how they apply these rates. Most DCAA-compliant accounting systems apply Fringe to Labor first, then Overhead is often applied to the Labor + Fringe pool, and G&A is applied to the Total Value Added. This calculator uses the multiplicative method, which is the industry standard for determining a final bid multiplier.