Indirect Rate Calculator

Indirect rates are the multipliers that convert your direct labor cost into the full cost of performing work on a government contract. Every business has costs that cannot be traced to a single contract: benefits, rent, administrative salaries, insurance. Indirect rates capture those costs and allocate them proportionally.

For government contractors, indirect rates serve two critical purposes:

• Pricing: They determine your fully-burdened labor rate, which drives your bid competitiveness
• Compliance: DCAA audits these rates to confirm costs are properly allocated and allowable under FAR 31.205

Getting your indirect rates wrong means either leaving money on the table (rates too low) or triggering audit findings (rates that include unallowable costs or improper allocations).

Direct Labor (DL): The wages paid to employees for hours worked directly on government contracts. This is your allocation base, the foundation that all indirect rates are calculated against.

Fringe Pool: Employee benefits and payroll taxes: health insurance, retirement contributions, FICA, FUTA, workers' compensation, PTO accruals. These costs are tied to labor but cannot be charged to a single contract.

Overhead Pool: Costs related to supporting the direct work: office rent, utilities, supplies, IT infrastructure, project management tools, depreciation on equipment used in contract performance.

G&A Pool: General and Administrative costs that support the entire business: executive salaries, accounting, legal, HR, business development, corporate insurance. These costs exist regardless of which contracts you are performing.

Example: If your Direct Labor is $100,000 and your Wrap Rate is 1.75, your total cost to the government is $175,000. The additional $75,000 covers all indirect costs.

The Wrap Rate is the single number that tells you how much each dollar of direct labor actually costs when all indirect costs are included. It is the metric that determines your competitiveness in government contracting.

A lower wrap rate is not always better. If your rates are artificially low because you are not capturing all indirect costs, you are underpricing your contracts, which leads to cash flow problems and potential DCAA findings for inadequate cost accounting.

1. Enter your Direct Labor: Total annual wages for employees who charge time directly to contracts
2. Enter your Fringe Pool: Add up all employee benefits: health insurance premiums, 401(k) match, FICA (7.65%), FUTA, state unemployment, workers' comp, PTO accruals
3. Enter your Overhead Pool: Sum your facility and support costs: rent, utilities, office supplies, IT costs, equipment depreciation, project management tools
4. Enter your G&A Pool: Total your administrative costs: executive compensation, accounting fees, legal fees, HR costs, business insurance, marketing, business development

The calculator updates in real time as you adjust any input. Use it to model different scenarios. For example, see how hiring another direct employee affects your wrap rate, or what happens to your G&A rate if you add an office lease.

Rate Breakdown bars show each indirect rate as a percentage. Compare these against industry benchmarks: Fringe typically runs 30-40%, Overhead 15-25%, and G&A 8-15% for most GovCon firms.

Cost Distribution shows the split between direct labor and total indirect costs. A healthy ratio for most contractors is 50-60% direct labor, 40-50% indirect.

Profitability Indicator:

• COMPETITIVE: Wrap Rate at or below 2.5. Your rates are in line with most GovCon firms.
• REVIEW: Wrap Rate between 2.5 and 3.5. Consider analyzing each cost pool for optimization opportunities or unallowable costs.
• HIGH: Wrap Rate above 3.5. Your indirect costs may be making you uncompetitive. A rate structure review is recommended.

These are general benchmarks. Your optimal rates depend on your contract mix, geographic location, and business model. For a personalized rate analysis, take our Compliance Readiness Check below.