it began operating on 1 July 2005, the Commission has been designing and
building a register of charitable entities in New Zealand. It will
begin accepting registrations in mid-2006.
with the Commission is voluntary and has no bearing on the legal status of
charities. If your organisation chooses not to register itself with
the Commissioner it will still be able to call itself a charity and solicit
funds from the public, but it will no longer qualify for tax exempt status.
register, charities will be required to provide the Commissioner with
documentation that proves the organisation is carrying out charitable
purposes and activities. Once registered , your charity does not need
to provide documents to IRD also. Instead, the Commission will inform
IRD that they have registered the charity.
will continue to be responsible for ensuing that eligible charitable
organisations receive their tax exemptions. In the next few
months, IRD intend to issue a statement advising charities on the
requirements for tax exemption. Organisations will have until 30 September
2007 to register before their tax status is affected.
Charities Commission have published a booklet "A Guide to the Chaities
act", which is on their website www.charities.govt.nz.
GUIDELINES FOR ESTABLISHING A CHARGE-OUT RATE
FOR YOUR BUSINESS
Many service businesses find establishing a fair charge-out rate
difficult. You obviously donít want to be uncompetitive in your charge-out
rates. But you also donít want to set an unrealistically low charge-out
rate that means youíre struggling to get anywhere. Here are some
guidelines on establishing a fair but profitable rate for your business.
How to work it out
These are the six basic steps to take when working out a charge-out rate
for your time:
- Decide what income you want from your business.
- Work out how many hours you can realistically charge out each year.
- Work out a chargeable rate to achieve your income.
- Work out your overhead costs, and an additional hourly rate to cover
- Add a profit margin.
- Check your rate against the competition.
1. Decide what income you want
Your target income should be based on things such as the standard of
living you want, what you could earn elsewhere as a salary, or what you
could earn by investing your money elsewhere, plus a risk margin for being
Letís start by assuming that you want an annual income of at least
$36,000 (before tax) from your business.
2. How many hours can you realistically charge out?
Be realistic about the number of hours you can charge out each year. For
example, if you work 40 hours a week every week of the year, you could
theoretically work 40 x 52 = 2,080 hours in a year. But this doesnít take
account of holidays (say three weeks), statutory holidays (another two
weeks) and sick leave (say another week). So the working year now shrinks to
a more realistic 46 weeks of 40 hours, or a total of 1,840 hours.
But it is still unrealistic to imagine you can bill out all these hours.
Some of your time will be taken up with non-chargeable activities such as
administrative tasks, banking, meetings, tendering for work, promotional
work, waiting for work and travel time, tea and other breaks.
One way to find out how much time youíre spending on such tasks is to
keep a diary for a week, or longer if appropriate. Letís assume at a
conservative estimate that these non-chargeable tasks take up 25% of your
So one quarter (460) of the 1,840 available hours needs to be deducted
for these tasks. Subtracting 460 from 1,840 leaves you with a total of 1,380
3. Working out your charge-out rate to cover your income requirements
Now you can work out a charge-out rate to cover the income you want from
the business. Youíre aiming to earn a minimum of $36,000 and youíre able
to charge out 1,380 hours yearly. To get an income of $36,000 you must
therefore charge your time out at $36,000 divided by 1,380, or $26.09 an
hour. To this you must also add the ACC levy appropriate to your line of
say the ACC levy rate for your activity is 4%. So $26.09 plus 4% =$27.13.
So in order to earn $36,000 a year, you must at least charge your time
out at $27.50 (rounded up).
4. Work out your overhead costs, and an additional hourly rate to cover
Your charge out rate needs to cover your overhead costs or you will be
running at a loss. Your overheads should be detailed in your Business Plan
or Cashflow Forecasts. Or you can check your previous Profit and Loss
Statement to identify them.
Letís assume, for this exercise, that they are something of this order:
Accounting fee $1,000
General Expenses $500
Heat, Light, Power $1,000
Legal Fees $600
Motor Vehicle $3,000
Repairs and Maintenance $900
Letís round this off to $20,000. So $20,000 divided by the 1,380 hours
means you need to add another $14.49 to your hourly charge-out rate of
$27.13, taking it to $41.62.
5. Adding a Profit Margin
So far the charge-out rate will enable you to achieve your required
income, plus an extra amount per hour to cover your business expenses.
Thereís one extra factor to add: a profit margin. In addition to making
your target salary of $36,000, you also need to make a profit margin. This
profit margin is compensation for the risks you take when you run your own
business, rather than working in paid employment.
A profit margin of 15% would be $6.24 an hour, taking your final
charge-out rate to $47.86. So realistically your charge out rate should be
at least $48.00 an hour, or $54.00 per hour if youíre quoting on a GST
inclusive basis. (GST of 12.5% per hour = $5.98).
6. Is the rate competitive?
At this stage you might be worried that the charge-out rate is
uncompetitive compared to what others in your industry charge.
In some cases you might have to remain within an industry scale of fees.
In any event you do have to be aware of the average in your industry as you
might struggle to get work if you are a long way out. Here are some options:
Lower than average
If your calculated charge-out rate is lower than the industry average,
then you donít have a problem - instead you have an opportunity to earn a
better income and you can set your sights higher. For example, if you
determine that your charge-out rate should be $48.00 per hour and you know
the industry average is $60.00 per hour, you can raise your rate to this
level or close to it.
Charging too little for your skills and services can be as bad for
business as charging too much because it can undermine peopleís confidence
in you. They might wonder why you are so much cheaper than others.
Higher than average
If your charge-out rate is higher than the industry average, then: