Facility Management Billing: Should Our Fee Include Overtime in Total Costs?

We are the Facility Management Services. My question is, while preparing the invoice for our contractor, should our management fee include the total mandays cost plus overtime cost? That is, is the management fee 10% on the total cost (mandays plus OT), or is the management fee 10% on the total cost (mandays) excluding OT?

Dear Mr. Nagrajan R, the payment to workmen (Wages for 30 days + OT + Employer PF + Employer ESI + Bonus + Leave Encashment + Uniform and other consumables) is actual. All the above are to be paid to you for the workmen on receipt from your client. Therefore, you have no income left for your establishment.

Thus, you need to decide what your service charge should be to ensure the sustainability of the establishment. It can be an X amount for each unit of the manpower supplied by you and should be charged separately on the invoice.

Computation of Management Fees

The computation of management fees depends on the contract you have signed. However, if you base the management fees on the standard cost, you will lose out in terms of additional billing.

Considerations for Working Capital

Also, remember that you are using working capital to sustain the payments, and overtime means you need to use additional working capital. This carries a cost in terms of interest or lost opportunity cost, which you should be able to recover.

Impact of TDS on Contractor Bills

Another point to remember is that some companies deduct TDS of 2% on contractor bills, so you will lose 2% of OT as well. If your management fees exclude OT, you may face a cash flow problem because the refund of TDS will come to you 18 months or so down the line.

Effect of Overtime on Worker Deployment

Furthermore, the fact that the workers are doing overtime also means that you are being asked to deploy a lesser number of workers. If you were deploying additional workers instead of paying overtime, your billing would be higher anyway. This is another justification for following the COST + OT method.

Service provider's service charges are to be levied on total wages, including minimum wages and overtime.