Read time: 4 minutes
The costs of running an architectural practice consist of fixed and discretionary (controllable) technical and non-technical staff salaries and overheads. Overheads are the non-project-based costs of running a practice and include administrative staff costs, premises, office equipment, motor vehicles, insurance, printing and stationery, to name just a few.
Technical salaries
The term 'technical staff' covers directors or principals who are involved in projects, along with staff architects, architectural assistants, drafting staff, specification writers, CAD operators and any others working directly on projects.
It is important to include salaries for the directors or principals of the practice, set at a realistic level, commensurate with their expertise and experience, to enable accurate project costs to be established.
As few technical staff will spend 100% of their time on project work, a record of the time spent working on projects should be maintained over the year by each director and technical staff member, refer Time records. In this way time spent working on project work can be accurately assigned to each project and time spent on non-project work can be assigned to overheads.
Non-technical staff
Non-technical staff include staff such as an office manager, secretary, receptionist, librarian or accountant.
The cost of non-technical staff will generally be included in overheads however they should also maintain time records as they may also spend some of their time on project related work.
Overheads
Overheads can be divided into five categories:
1. Non-project component of salaries
Non-project salaries are the salaries of non-technical staff, such as an office manager, secretary, receptionist, librarian or accountant. Where particular staff in this category are allocated to projects, they might be classed as technical staff and the project and non-project components calculated accordingly.
The non-project components together with the total of the non-project salaries form the overheads under this heading.
If it is the office practice to charge-out some of the time of non-technical staff, then they should be treated the same way as technical staff.
2. Staff on-costs
Overheads include all staff on-costs such as payroll tax, superannuation, fringe benefits tax and other salary on-costs, if any.
Some on-costs such as payroll tax are state taxes and the rate may vary from state to state and is only payable where the total salaries exceed a regulated minimum.
Workers' compensation premiums are dealt with as part of fixed overheads.
3. Fixed overheads
The fixed overheads are those over which one has little or no control on a weekly or monthly basis as they are fixed commitments. The following are examples of fixed overheads:
- architects registration fee
- accounting fees
- auditor
- bank charges
- bad debts
- depreciation
- filing fees (ASIC)
- insurances
- professional indemnity
- bank interest
- leasing
- equipment
- motor vehicles
- hire purchase
- equipment
- rent
- subscriptions
Additional or other cost centres of fixed overheads should be added if any are applicable. It would be prudent to follow the relevant cost centres set down by the firm's accountant.
4. Non-budget items
There will always be unforeseeable expenses that arise during the year. Some allowance should be made for such items, rather like a contingency sum.
5. Controllable overheads
The following are typical examples of controllable or variable overheads:
- advertising
- cleaning
- computer expendables
- computer software licences
- consultant fees
- couriers
- electricity
- entertainment (non-tax deductible)
- legal expenses
- library expenses
- petty cash
- photography
- postage
- printing and stationery
- public relations, marketing
- professional development
- repairs and maintenance
- staff amenities
- subscriptions
- telephone/fax
- travel expenses
- vehicle expenses
Additional or other cost centres can be added if required. Again it would be prudent to follow the cost centres set down by the firm's accountant.
Total annual expenses
The total annual expenses of the practice will be the total of all salaries, staff on-costs, fixed and controllable overheads and non-budget items.
Further reading
The Institute's HR Hub includes support materials on salaries - refer details below:
Disclaimer
This content is provided by the Australian Institute of Architects for reference purposes and as general guidance. It does not take into account specific circumstances and should not be relied on in that way. It is not legal, financial, insurance, or other advice and you should seek independent verification or advice before relying on this content in circumstances where loss or damage may result. The Institute endeavours to publish content that is accurate at the time it is published, but does not accept responsibility for content that may or has become inaccurate over time. Using this website and content is subject to the Acumen User Licence.