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What % Markup do you use to budget for NI & Pen

I could do with help on a break down of NI & Pen to budget as the accountants say 16.6% is standard

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Hi all,

Thanks for reading.
My question is essentially what do you guys add into your budgets as a predicted cost for NI & Pension. The accountants (who do our payroll and YE tax) have said 16.6% is standard, and our operations director agrees.

My issue is I have created a GP Calculator for the sales team, using this and then also including a predicted cost for accrued holiday (as in this work cover will be needed when a member of staff is on AL)

The argument has now come between the sales team and SMT that the holidays and a markup of 16.6% create too high of a price for the company to gain sales (CEO agreed 30% GPM)

My issue looking at this is that I wonder if the 16.6% is supposed to be inclusive of accrued holiday as a standard.... and that it is simply a coincidence that it is similar to 13.8 (NI) + 3%(Pen)... No one seems to know the exact breakdown for this and have believed it to be a 'standard'....

I would like to know what you guys think as I do believe it is coming out higher due to allowances in NI (Not up on Tax here (I'm Man.Accounts, hence why I ask advice of the Fin. accountants).

Any ideas or feedback on this would be great.

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By paulwakefield1
12th Aug 2021 10:01

If your sales team is salaried then you wouldn't normally need to accrue holiday pay although some would need to be added for any commission based remuneration. However the actual cost you are incurring is for providing cover; if this is sourced externally to the reporting unit then you need to include the cost.

16.6% for pension and Eyr NI seems about right although a little pessimistic as the first £8.8k is Eyr NI free but there may be NI to come on benefits, etc.

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By JasonG
12th Aug 2021 10:15

That may have been me not explaining clearly.
we are a service company and charge out, not the sales team being charged and holiday accrued.

More info below if you wanted to ponder it.

So in my GP calculation - Below - (which is then marked up for a sales price to Bid)

Hours to provide service (e.g. 168 for 24/7) + Accrued holiday hours e.g. (168*5.6/52)
And the total times buy the hourly charge then times up by 1.166 or the 16.6%

it seems then that our sales team believe adding a 30% markup to this seems high... It does seem to be similar to others in the sector...

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By paulwakefield1
12th Aug 2021 11:03

Just to depress you, in my view your HP ratio should be 5.6/46.4. The 16.6% is probably about right on a marginal cost basis. However an actual basis based on history as Lesley Barnes has suggested (or on budget payroll costs) might lower the %.

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By lesley.barnes
12th Aug 2021 10:04

If the sales team don't think the figure your accountants have suggested is too high can you not analyse the figures from the last 12 months of your payroll and calculate the % for your business? It shouldn't be to difficult to get cumlative figures. No matter what anyone suggests it will only be a general figure not specific to your business. If you tailor it to your business then the sales team can't argue.

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By tom123
12th Aug 2021 12:25

Just because a marked up cost is too high to sell doesn't mean the cost is wrong :)

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By Leywood
12th Aug 2021 12:38

Plus sales guys argue with all forecasts, would kill their grandmothers to get the results in their favour

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By paul.benny
12th Aug 2021 12:30

If you're trying to establish a charge out rate, there's more to it than salary+NI divided by working days.

For a start, I'd be looking at all the costs of employment - so salary, NI, pension, as you mention, plus cost of any benefits, plus travel and subsistence and any other expenses incurred by the people.

Then divide by chargeable days - so calendar days less holiday, less sick allowance (UK average is about 3%), less non-billable time (eg training, team meetings, time between assignments).

If you're efficiently using your team, your billing out will recover 100% of that cost over the year. If your recoveries are significantly lower either your sums are wrong or your people are not being used efficiently.

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By tom123
12th Aug 2021 12:41

I like your "management accounts" style thinking, there, Paul!

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By Hugo Fair
12th Aug 2021 13:41

+1
Given that the objective is really a 'pricing' exercise, an accounting approach just confuses the issue. And you'll probably find it much easier to gain understanding from the non-accounting managers/directors this way!

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By DKB-Sheffield
12th Aug 2021 13:35

The figure you give may be right for your business, or it may be vastly overstated. It depends on the salaries involved.

If all staff are p/t minimum wage <£8.8K per annum, having opted out of the AE pension, the % on-cost will be negligible% + holidays + sick + benefits + etc.

However, if all staff are executives on £80K per annum and are pension contributors, the on-cost may be accurate at 16.6% + holidays + sick + benefits + etc.

As for sales teams... in my days before private practice I worked in hospitality. Each department had their own targets. But, many services were inclusive (e.g. bed & breakfast, conference packages, wedding deals). Numerous times one department reduced the price to "win" a sale - only to argue another department should take the hit. Worse still significant sales were lost because one department did not see the point in agreeing something that would benefit another. At a company level I was more interested in total sales!

I suppose the answer to the sales team is... you are marketing a resource. If you can provide 100% of the staff 100% of the time, the markup could be lower. If, however, they can only guarantee providing 100% of the staff 70% of the time, the company will almost certainly run at a loss.

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