Determination of the Employee Profit Contribution

In the following, the employee profit contribution for a defined period of time is determined by means of contribution accounting. A service providing company serves as example. Initially, the sales revenue that is achieved by a defined employee group (department, branch etc.) is entered. Afterwards, the revenue reductions (such as discount) are subtracted in order to calculate the net revenue. Subsequently, the different cost positions are subtracted step by step from the net revenue.

Figure 2: Calculation of the employee profit contribution

Interpretation of the Employee Profit Contribution

Since the employees' profit contribution I only includes cost positions that directly result from personnel placement, this profit contribution openly shows, which part of the revenue would not have been achieved without the employee placement. Because of the detailed classification of the personnel cost components of a service providing company, factors, which do not generate turnover, such as times absent or employee turnover, can be identified. In order to counter steer by means of controlling, the reasons have to be analyzed. Another field of application turns out, if the personnel department of a company is considered as independent personnel service provider. In that case, the determined personnel costs (if necessary including profit mark-up) represent the settlement prices for other divisions of the company. Moreover, they directly illustrate the contribution of the personnel department and the total proceeds achieved by the company.

The employee profit contribution II arises after subtraction of the direct costs that are needed for the generation of services.

Finally, the employee profit contribution III results after deduction of the overhead costs, which cannot be imputed directly to the assignment. However, especially within the service sector a direct attribution of the remaining overhead costs by means of activity-based costing2 is possible and reasonable, since the personal costs are already allocated in this way, as shown above.

The employee profit contribution may be used to support the strategic planning, since it reveals starting points to increase the company's profitability.

The profitability of an employee varies over the cycle of his employment. Usually, in the beginning of an employment the relation between turnover and costs does not fulfill the expectations, f. ex. Because of the training period or training measures. Due to experience and learning effects, this relation typically reverses and profit is gained within subsequent phases of employment. Therefore, while interpreting the figures the phase of the employment has to be taken into consideration. Otherwise, wrong decisions will be made that may result in a hastily dismissal because of negative profit contributions. A possible solution in order to increase the profit contributions is the introduction of flexible working hours. Through an optimized personnel placement planning, which considers variations in workload, expensive overtime and extra pay as well as times of unproductiveness are avoidable.

In addition, while interpreting the employee profit contributions of a service provider, the current and future demand of the market, the sphere of competition and the overall economic environment has to be considered.

Projection to the Employee Cash Flow

In order to calculate the employees' cash flow, the scheme of the profit contribution calculation can be used. However, the liquidity-related components are in the focus. Revenues adjusted by revenue reductions are affecting payment anyway. This is not unrestrictedly valid for costs. Therefore, cost components on a value basis, such as depreciations and reserves have to be extracted. For a determined period of time considerable differences between liquidity-related costs and costs on a value basis may consequently occur.

Figure 3 gives an overview about the detailed determination of the employees' cash flow.

In order to calculate the employees' cash flow, the revenue reductions are subtracted from the sales revenue. The result is the net revenue. In a next step, the personnel costs are subtracted. Costs that are not affecting payment, which are already deducted within the corresponding cost element, such as depreciations and pension reserves, are eliminated by addition. Direct and overhead costs are treated in the same way. Eventually, the payments resulting from investments are subtracted, providing that the payment was affected within the period under consideration. Referring to the personnel sector, especially the investments into personnel development have to be considered. They result from single cost positions such as payments for times absent, travelling costs or charges for seminars. Furthermore, there should not be a time lag between incoming payment and revenue, which is the case for sales with payment target or received prepayments. In the case of sales with payment target, the surplus of the incoming payment is lower than the cash flow. In the case of prepayments it is the other way round. A time lag between outpayment and expense, f. ex. in the case of purchase on credit or prepayments to suppliers, has to be taken into account, too. In the case of prepayments to suppliers the surplus of the incoming payment is again lower than the cash flow.4


Figure 3: Employee-Cash-Flow-Calculation

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