Estimate your hourly employee cost rates in QuickBooks Online

Learn how to estimate your hourly employee cost rates so QuickBooks can calculate project costs.

When you use projects, you should add cost rates for your employees. This helps QuickBooks calculate more accurate project costs and profitability.

What's cost rate

Cost rate is the total cost of an employee to your business. It includes their pay rate, benefits, insurance, overhead, and taxes. For products, it contains the purchase price, manufacturing expenses, and shipping costs. Get more info about pay rates, cost rates, and billable rates in QuickBooks Online.

For QuickBooks Online Payroll customers, this tool automatically reflects employees' pay types and rates, and converts salary to hourly rates. Otherwise, you can manually enter your employees' pay rates.

1. Go to Projects.
2. Select Manage settings, then Set cost rate.
3. Once you find the employee you need to work with, enter their details like pay rate, benefits, taxes, insurance, and overhead.
4. The cost rate will automatically calculate, then select Save.

If you previously added cost rates for employees, those amounts will carry over into this new calculator.

How the cost rate estimation tool works

This tool helps you estimate your hourly employee costs with the common factors that contribute to the total cost for an employee.

Keep in mind that the cost rate is the employer's cost and therefore all associated costs the employee pays should be excluded. And, the cost rate estimator tool calculates the cost rate as a per hour amount. All amounts you enter into the estimator should be on a per hour basis (excluding taxes, which are entered as a percentage).

Common factors that contribute to total cost

• Pay rate - The amount you pay a worker to do work for a set amount of time, also known as a wage. For hourly workers, the pay rate is their wage per hour. For salaried employees, the pay rate is calculated by month or year. 
• Benefits - The amount you pay for the worker’s employee benefits like health insurance (including medical, dental, vision, life insurance) and 401(k).
• Taxes - The amount you pay in taxes to employ the worker, calculated as a percentage. This amount is defaulted to the standard tax that includes the employer match for Social Security and Medicare taxes.
• Insurance - The amount you pay for insurance to employ the worker. For example you may include general liability or workers’ compensation insurance costs.
• Overhead - The amount you pay for other expenses that you want to factor into your costs. For example you may include costs associated with uniforms, equipment, mobile devices, or training.

The amounts you enter into the cost rate estimator tool are added to the cost rate for each employee. They’re used in projects to calculate project costs.

Overtime pay

Within the cost rate estimator tool, you can select if overtime pay applies to each employee. When you select Yes, a separate overtime cost rate is calculated and used when the employee works overtime hours (see calculation below). This makes sure you have the most accurate project costs.