What is the Overheads per Subsidiary Feature?
The Overhead Cost per Subsidiary feature enables companies to calculate overhead costs on a per-subsidiary basis.
This means that each subsidiary within an organization can have its own overhead calculation, which includes facility and internal costs.
By doing so, profitability insights become more accurate, as overhead costs are no longer applied globally across all subsidiaries.
Who Benefits From Enabling This?
Many companies with multiple subsidiaries have units with varying operating costs. For instance, one subsidiary might have higher operating costs due to its location or size, while another might have lower costs.
By blending these diverse units together in one global overhead calculation, companies may not have a clear picture of the actual costs and profitability of each subsidiary.
The Overhead per Subsidiary feature allows organizations to account for these differences and gain more precise profitability insights.
Things to Know Before Using the Per Subsidiary Calculation
"Per subsidiary" overhead calculation is quite complex due to the various organizational structures it must accommodate. During the beta phase, we recommend the following setup requirements to best utilize this feature:
Suitability Warning
This approach may not be suitable for organizations that use subsidiaries as "Cost Centers" where employees exclusively work on client budgets for other subsidiaries within the organization.
The feature is most beneficial for organizations where each subsidiary maintains its own client budgets and directly generates billable hours.
Prerequisites
Internal Budget Structure: Each subsidiary should maintain its own internal budgets where employees from that workplace subsidiary track their time.
Client Hour Distribution: Each subsidiary should generate a meaningful portion of client hours. This is critical because the "Internal cost per hour" calculation divides "Internal costs" by "Client hours" for that subsidiary. Subsidiaries with few or no client hours will produce disproportionately high internal cost per hour calculations.
How Does the Feature Work?
The Overhead per Subsidiary feature introduces the ability for each subsidiary within the company to have its own overhead calculation. Here's an overview of how the functionality works:
1) Navigate to Settings
The Overheads per Subsidiary feature integrates into the existing Overhead Cost screen in Settings > Overhead Cost.
From there, make sure that the Overhead Cost toggle is on and navigate to the Calculation Type dropdown.
This field has the option for "Per Subsidiary" when the system detects that the organization is using a multi-subsidiary setup.
2) After Selecting "Per Subsidiary"
You’ll be notified of the initial faculty cost recalculation. The first subsidiary added to your account will receive the full facility cost as a starting point, giving you a baseline to adjust the per-subsidiary costs.
This allows you to fine-tune each subsidiary’s overhead cost after switching from the organization-wide calculation, ensuring more accurate allocation.
A subsidiary list dropdown will appear, listing all subsidiaries in alphabetical order.
By default, the first subsidiary you created will be displayed. To adjust the settings for other subsidiaries, select them from the list. Once selected, you’ll be able to adjust:
Facility cost
Other recurring cost items (such as software licenses, utilities, and equipment rentals)
You can also group these cost items into sections for easier management.
3) After Saving
Once saved, you’ll see the following information for the selected subsidiary:
Overhead cost setup for future months
Projections for the current month
Overhead history for the selected subsidiary
Calculation of Overhead Costs
This feature focuses on calculating facility and internal costs on a per-subsidiary basis. Here's how each element is calculated:
Facility Costs per Hour are calculated based on facility expenses and total hours (including internal hours, client hours, paid time off hours).
Internal Costs per Hour are based on the internal costs (such as time, expenses, and overtime costs) associated with the subsidiary. These costs are then divided by the client hours associated with that subsidiary.
The core formula for calculating overhead per hour at the subsidiary level is:
Facility cost per hour for Subsidiary X + Internal cost per hour for Subsidiary X = Overhead per hour for Subsidiary X.
Example of Overhead Calculation
Employee overhead costs are based on their workplace subsidiary. However, if they log hours for a client budget belonging to a different subsidiary, those hours will contribute to the overhead calculation of that budget’s subsidiary.
For example:
A Subsidiary A employee with an overhead rate of $10 per hour logs 5 hours on a client budget for Subsidiary B.
Those 5 hours contribute to the overhead per hour calculation for Subsidiary B.
The cost of that employee’s time for Subsidiary B is still their cost rate + $10 from Subsidiary A.
Global Overhead Settings
Certain global settings, such as Averaging Period and Calculation Date, will apply to all subsidiaries at once.
These settings are visually separated from the individual subsidiary overhead calculations.
Transitioning From the Organization-Wide Model and Back
For organizations transitioning from the organization-wide model (where overheads were calculated globally), the system ensures that previous calculations are still accessible.
You can view historical data for past months when the organization-wide calculation method was in use.
If you decide to move from the per-subsidiary model back to the organization-wide model, the system will aggregate the facility costs from all subsidiaries and revert them to a single, global overhead cost.
