What best describes the Direct Salary Expense Multiplier?

• A. A factor used to determine profit margin for shareholders
• B. A number typically between 3.0 and 4.0 used to cover salary, overhead, and profit
• C. A rate that equals the client’s payment for direct salary expenses only
• D. The hourly wage paid to employees

Answer: (B)

Direct Salary Expense Multiplier is the factor used to convert direct salary costs into a client-billable rate by including overhead and profit. In practice, you multiply the direct salary by this number to determine what you charge the client for direct labor. It’s typically between 3.0 and 4.0, meaning for every dollar of direct salary you bill roughly three to four dollars to cover indirect costs (overhead) and desired profit. This multiplier is not simply the payment for direct salary expenses alone, nor is it the hourly wage paid to employees, and it isn’t a margin for shareholders. It’s the rate you apply to direct salaries to arrive at a full, project-related billing rate.