Inquiry: I wonder if you could help with a related problem/question. We're a staffing company and provide temps to Federal agencies on a per hour basis. The question relates to Overtime. Obviously we pay the employee time and a half for overtime work. Does the FAR address any formula for how we compute the Overtime Bill Rate? We've heard different things from different contracting officers and would like a FAR reference to make sure our pricing proposals are consistent with the FAR.
To be more specific, several contracting officers have told us to simply increase our bill rate for normal hours by time and a half. Other CO's have told us that is illegal? But have not been able to point to a particular FAR section to guide us in making the correct analysis and computation of a proper Overtime rate.
Any guidance or referral to the proper source would be appreciated
Response: I have found no uniform guidelines in this area. One way is for the premium portion of Overtime Direct Labor to be treated as ODC, rather than Direct Labor. Also, to the extent the contractor can identify other additional fringe costs, these could also be added to ODC. Because payroll taxes have low ceilings, there are usually little additional costs. There may be some additional Social Security taxes; however, insurance costs may not increase. The contractor should not get normal overhead. Few items in the overhead pool will increase. Applying normal overhead may give the contractor a windfall.
Exception: If the contractor originally developed the overhead rates with estimated overtime in the base, then it is acceptable to allow the contractor to apply normal overhead rates. The buyer needs to determine this.
To sum up: Unless the contractor's approved accounting policy requires otherwise, billing the Overtime premium and related insurance/payroll taxes as ODC appears to be the cleanest way of handling the cost. Normal overhead (except for G&A) is not applied to ODC. The contractor does not incur meaningful added costs except for the premium and the Government is billed only for this premium cost.
It gets back to how You the Contractor normally develop your indirect rates. What your policy is for Pools and Bases. Some CO's will just say take the fully burdened normal rate times 1.5 and others may request a different method. It is clear that it is in the contractors? best interest to use 1.5 times the normal fully burdened rate.
However, even if a contractor takes the base direct hourly rate and multiplies it times 1.5, if the fringe, overhead, and G&A are then applied to that O/T base rate, the result fully burdened rate will be the same as simply multiplying the original fully burdened rate times 1.5. It's a Number Thing!
My policy might state that, to minimize administrative effort and cost, Overtime Labor Rates are calculated based on 1.5 times the regular fully burdened rate, unless specifically directed otherwise by the customer. I would ensure that in any proposals or other calculations of indirect rates that the pools and bases reflect this method of calculation. That is, I would put the overtime premium in the base for fringe benefits, overhead and G&A.
And that's the way I see it!