In the same example, what is the direct salary expense multiplier?

• A. 2.0
• B. 3.0
• C. 4.0
• D. 5.0

Answer: (C)

The idea behind the direct salary expense multiplier is to show how much total salary-related cost you incur for every dollar of direct salary. It’s calculated by comparing the total salary-related expense to the direct salary expense: multiplier = (direct salary plus overhead and benefits) / direct salary.

If the example has direct salary of 100,000 and additional salary-related costs like overhead, fringe benefits, payroll taxes, and other compensation-related expenses totaling 300,000, the total salary-related cost is 400,000. Dividing 400,000 by 100,000 gives a multiplier of 4.0. This means for every dollar of direct salary, there are four dollars of total salary-related cost.

This multiplier is useful for estimating the full cost of labor when pricing work or budgeting, since it accounts for all the extra compensation-related expenses tied to salaries.