Dear Dave,
We have picked up some public-sector work this year for the first time. Not having worked with government agencies, we are confused by some of the rules, restrictions, and regulations with which we must comply. Specifically, what should we do when a salaried staff member works more than 40 hours in a week on a cost-plus contract? Since salaried staff is not being paid overtime, do we stop recording and billing this time against the project when it is more than 40 hours in a week?
D.R., Ill.

Dear D.R.,
The timesheet for any individual must always reflect all hours worked. There are two acceptable ways to handle the situation you described. You may recalculate the effective hourly pay rate for those weeks in which salaried staff worked more than 40 hours, or you may elect to keep the hourly rate constant and credit (reduce) the firm’s overhead pool for the equivalent dollar value of the unpaid hours charged directly to the projects.

First method—Assume an individual’s weekly salary is $1,000, equal to a standard hourly payroll cost-per-hour of $25 ($1,000 divided by 40 hours). If that individual worked 50 hours one week, you could choose to change the hourly cost rate for that particular week to the effective rate of $20 ($1,000 divided by 50 hours). If you elect this method, you must continue to adjust the hourly charge rate each and every week by recalculating the effective hourly rate each subsequent week based on how many unpaid hours are actually worked.

Second method—The alternative is to maintain the hourly cost rate charged to projects at a constant $25 per hour. Any and all hours would be assessed to projects at the fixed cost of $25 per hour. In weeks in which a salaried individual works more the 40 hours, a payroll variance is created equal to the amount by which the payroll charged to projects is greater than the amount actually paid. This payroll variance is credited back as an offset against the firm’s indirect overhead cost pool (thereby reducing the firm’s calculated overhead cost).

Current versions of engineering accounting packages can handle either method. Just be consistent in whichever method you elect to use.

Better bonuses
Dear Dave,
Please share some insight on an internal debate we are having about how best to handle bonus distributions. We are discussing whether we may generate a greater benefit in the form of more ongoing interest and enthusiasm if, instead of a once-per-year payout we provided more frequent bonus distributions, such as twice a year, or maybe even quarterly.
G.S., Kan.

Dear G.S.,
Generally, I recommend making a single distribution once each year. By making one payout, the distribution is larger than if you spread the amount over two (or four) smaller bonuses, and therefore might have a greater psychological "oomph" to it than several smaller checks. On the other hand, more frequent checks present more opportunities throughout the year to reinforce behaviors necessary to ensure continued success.

If you stick with a single distribution, you can accomplish almost the same reinforcement by providing monthly or quarterly progress reports sharing how well the company is doing relative to the factors that go into determining what the ultimate bonus might be by the end of the year and still make the one larger payout at the end of the year.

If your firm is subject to up-and-down swings in its performance during the course of a bonus year, you would obviously need to be careful about not over-distributing in one or two periods and then incurring a loss in a remaining period. I have encountered firms that accumulate and pay bonuses from period to period but hold back a reserve from each periodic distribution to net out any unanticipated bad period in the future. At the end of the year, the bonus money held in reserve is distributed as part of the final payout.

Whether you stick with a one-time payout or move to more frequent distributions for your bonus program, don’t overlook the enormous power of also making a number of small-value, token-like gestures in recognition of an individual’s performance whenever you notice pleasing performance that you would like to encourage. Management studies have shown for decades that we all have deeply rooted needs to feel that our contributions and accomplishments are being recognized and appreciated by those we work for.

Recognition can take many forms and should not be limited to just year-end bonuses. Compliment your main-line bonus program by getting in the habit of making spontaneous little gestures signaling that you notice and appreciate what individuals are doing. A sleeve of golf balls here, a gift certificate there, or perhaps an afternoon off with pay are all small ways to let people know that you know that they are contributing. Tokens used for recognition need not cost much, but pound for pound, symbolic recognition can be worth its weight in gold when it comes to generating goodwill with your staff.


Get answers to your questions about design firm and project management, finances, marketing, and related topics by sending them to Q&A c/o: CE News, 330 N. Wabash, Suite 2525, Chicago, IL 60611, or faxing them to CE News at 312-628-5878. Include your name and telephone number in all correspondence. Your name will not be used in connection with published questions. David Wahby is president of Wahby & Associates (www.wahby.com), a management consulting firm serving A/E clients. He can be reached at 616-977-9756 or via e-mail at wahby@wahby.com.