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# How to Calculate Employee Efficiency

Sep 19, '17 9:00 AM EST

This post is brought to you by BQE Core.

Have you ever wondered if you’re paying your employees less than they deserve? More importantly, how do you even assess your staff’s productivity and value?

Knowing the utilization or efficiency of your employees can help gauge their productivity and value. Remember, on average, your employees should be more than 70% efficient.

### Getting started:

There are some specific terms you need to know and calculate before you go ahead with your new mission. Also, note that this efficiency or utilization rate looks at the billable or chargeable hours of your employees.

• Pay Rate = Annual Salary / Total Standard Working Hours
• Overhead Multiplier = Total Year Expenses / Total Payroll
• Cost Rate Multiplier = Overhead Multiplier + 1

• Bill Rate = Pay Rate x Cost Rate Multiplier x Profit %
• Effective Bill Rate = Bill Rate x Utilization Rate
• Max Pay Rate = Effective Bill Rate / Cost Rate Multiplier
•  Ideal Pay Rate = Max Pay Rate / Profit

### Here's an example:

Let’s illustrate this with an example. We’ll say that your firm has an overhead multiplier of 1.75 and aims for a profit of 20%. Now, let’s take a look at the ideal pay rate for an employee who is earning a yearly salary of \$75,000 with a utilization of 82.5%.

Pay Rate = 75,000 / 2080 = \$36/hour
Cost Rate Multiplier = 1.75 + 1.0 = 2.75
Bill Rate = 36 x 2.75 x 1.2 = \$120/hour
Effective Bill Rate = 120 x 82.50 / 100 = \$100/hour
Max Pay Rate = 100 / 2.75 = \$36/hour
Ideal Pay Rate = 36 / 1.2 = \$30/hour

The above calculations make it clear that something's off. In other words, your company is not making the desired 20% profit. Once you find this out, you’ll know that you’ll need to boost your employee's efficiency or make some other changes.

BQE Core offers another way of finding out information about utilization rates and more. It’s a project accounting solution that comes with advanced dashboards, letting you easily and quickly make the right decisions for your firm.

Whether you use Core’s dashboards and reports to do these calculations or you take the time to do them manually, they’re important numbers to have. So get going! It’s time to see for yourself how efficient your staff is. We highly recommend that you do this quarterly or at least at year-end for your entire staff. Staying on top of key performance metrics like utilization will keep your firm in tip-top shape and help you avoid any unpleasant surprises.

BQE Core sets the standard for billing, time & expenses, project management, and accounting software for professional services.

Made by award-winning BQE Software, it gives professionals the speed, flexibility, and visibility they need to accelerate productivity, boost profits, and spend more time doing what they love. Core boasts comprehensive dashboards, native mobile apps, in-depth reports, a bevy of customizable features, and a revolutionary pricing structure.

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