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Labor Availability – How to Calculate Maximum Available Hours

Every service related business wants to maximize the hours the staff bills or provides services to customers.  When they are working, the business gets to bill for time and generate revenue.  Maximum revenue means the best chance at creating the largest profit.

But how many hours can one staff member bill in a year?  Well, if there is 40 hours in a week and there are 52 weeks in a year, then the answer is 2,080.  But we know this isn’t realistic.  So what is the maximum number of hours a staff member can bill for in one year?

The easiest way to answer this is work backwards from the maximum total time to the actual available time given the normal issues most employees and employers deal with in business.  So, we’ll start out with 2,080 hours.

Holidays

This is the first set of adjustments all small businesses have to address.  There are ten traditional holidays in a year as follows:

  • New Year’s Day
  • Martin Luther King Day
  • President’s Day
  • Memorial Day
  • July 4th
  • Labor Day
  • Columbus Day
  • Veteran’s Day
  • Thanksgiving
  • Christmas

Now this doesn’t mean you are required to provide them as holidays, but they are traditional days off for most employees.  So let’s assume that as an owner of a business you have elected to provide eight of these days.  That is 64 hours of unavailable time for your employee.

Religious & Traditional Holidays

No matter where you live or what religion you practice, these days exist.  Most employees enjoy Christmas Eve off, the Friday after Thanksgiving, Good Friday, and some local holiday.  In the south, they have a Lee-Jackson Holiday.  In the north, it is customary to have St. Patrick’s Day off.  So every region in our nation deals with this issue.  So for the sake of this article, let’s assume the employer provides three of these days per year.  This equates to 24 hours.

Vacation/Sick

Most employers provide two weeks per year with five days of sick leave.  So therefore, each employee will take off up to 100 hours per year.  But in reality, most are not sick for the full five days.   However, we have to calculate availability for an employee.  So we will use all 100 hours as unavailable.

So where do we stand right now?  The formula is this:

Maximum Time Available:                    2,080
Holidays (8 Days * 8 Hrs.)                       (64)
Religious/Traditional (3 Days)                 (24)
Vacation/Sick                                          (100)
Physical Attendance Availability           1,892 Hours per Year

Each employee should physically be available to the employer for 1,892 hours per year.  But this doesn’t mean (s)he will actually work that number of hours for you.  Assuming there is enough work and the efficiency is perfect in your business, will the employee actually work and bill for 1,892 hours.  The answer is no.

There are other forces at work that take away from availability.  There is training, administration, and tooling requirements that have to be met. 

Training

In my profession, we are required to attend no less than 40 hours of training per year.  In the professional world, it is known as Continuing Professional Education.  For others, the time required is different.  For most licensed types of businesses (professional and occupational type licenses) the training ranges from 20 hours to 60 hours per year.  For others, you can figure on about 20 hours per year.  If your employees are relatively younger than they need more training.  If you industry utilizes technology and given the constant change with technology, you could be looking at 60 hours per year.  So for this article, a conservative 25 hours per year is used.

Administration

Typically the human resources director will interact with the staff several times per year.  You have payroll documentation issues, employee evaluations and benefits education.  So for a conservative number, this article uses 8 hours.

Tooling

Every business has tooling issues.  Even the office environment has tooling requirements.  The more sophisticated your business, the more time it takes to tool the staff and educate them on the changes.  In the office environment, computers and printers are constant issues especially the software changes.  In the auto repair industry, the MATCO Tool Truck pulls up once a week to sell his tools to the mechanics.  In electronics, there are always new meters or scopes to review and consider.  Again, each service related industry has its own set of dynamics as it relates to tooling, but it doesn’t change the fact that the staff has to spend some of their work year dealing with this issue.  So to be reasonable in determining the number of hours to deduct, this article assumes 8 hours per year for tooling.

From the physical availability number you subtract another 41 hours associated with the above items.  Now the maximum available billable hours per employee per year are 1,851 hours.  This equals 89% of the total hours available per year per employee (2,080).  In addition this assumes relatively conservative estimates for the above issues.

In reality it will be even less because of employee productivity, customer interaction issues, and administrative compliance (for invoicing, warranties, and documentation) and other industry related requirements.  For the employer, using 1,851 hours as the starting point and a measuring tool for productivity is a good number.  Over time the business should be able to calculate a reasonable productivity standard for performance based on this number.  Make adjustments for your business using the above as a guideline to determine the actual maximum billable time per year for your employee.  Act on Knowledge.

If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) businessecon.org.  I would love to hear from you. If interested in my services as an accountant/consultant; click on My Services in the footer of this article.

 

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About David J Hoare (389 Articles)
I spent 12 Years as a Certified Public Accountant, Over 20 Years of Practice in Accounting and Consulting, Controller in Management of Closely Held Operations, Masters of Science in Accounting, Prepared over 1,000 Business Tax Returns and Hundreds of Individual Returns

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