Fringe Rate equals total fringe benefits cost divided by productive labor (generally direct labor, overhead labor, and G&A labor combined); that rate then gets applied to direct labor. Overhead Rate is generally Overhead Pool Cost divided by Overhead Base (Direct Labor plus Fringe applied to Direct Labor), though other acceptable methods exist. Get either calculation wrong and the bid price carries the error forward. Solvability’s tools walk a small federal contractor through fringe and overhead separately, so each rate is accurate before it’s combined into a wrap rate with G&A and fee.
The two calculations
Fringe Rate = Fringe Pool ÷ Productive Labor (Direct Labor + Overhead Labor + G&A Labor)Overhead Rate = Overhead Pool ÷ (Direct Labor + Fringe)What belongs in each pool
| Pool | Usually includes | Usually excludes |
|---|---|---|
| Fringe | Payroll taxes, health and dental insurance, retirement match, paid time off, workers’ compensation, life and disability | Anything not tied to employing people — rent, software, marketing |
| Overhead | Costs of performing contracts: program and project management, facilities used by direct staff, project-specific tools and travel not billed direct | Costs of running the company — those are G&A |
| G&A | Executive salaries, accounting and legal, business development, corporate insurance, company-wide software | Anything directly attributable to a contract. Excludes unallowable costs, such as interest expense, penalties and advertising |
Where the judgment actually is
- The overhead / G&A line. A project manager supporting three contracts is overhead. A CFO supporting the company is G&A. Someone doing both must be split on a documented basis, consistently.
- Rent. Space used by direct staff performing contracts often sits in overhead; corporate space sits in G&A. Splitting by square footage is common and defensible when written down.
- Unallowable costs. Some costs cannot be recovered under federal contracts. They still exist in your books — they must be segregated, not deleted.
- Consistency beats optimization. Moving a cost between pools to improve a bid, then moving it back, creates pricing errors.
Turn the rates into a bid rate
Once fringe and overhead are set, layering them with G&A and fee gives your wrap rate.
Open the calculatorFrequently asked questions
How do I calculate my G&A rate?
Your G&A pool is the corporate cost associated with running your business. Divide your G&A pool by your allocation base — usually Total Cost Input. For a small business, Total Cost Input is usually Direct Costs plus Overhead.
What is a wrap rate for federal contractors?
Your wrap rate is what it costs you to put an hour of labor on a government contract — not just the direct labor, but fringe, overhead, and G&A stacked on top of it. A wrap rate takes direct labor and applies percentages called burdens to cover indirect costs: fringe covers payroll taxes, leave, and benefits; overhead covers support costs for your technical team; G&A covers corporate expenses. Solvability’s Wrap Rate Calculator walks through these calculations and how to apply them when pricing a cost proposal.
How do I know my accounting system is DCAA compliant?
Strictly speaking there is no such thing as a DCAA-certified accounting system — DCAA audits systems, it does not certify them, so what you are really asking is whether yours would hold up under a federal audit. Your indirect rates and your pricing sit on top of your accounting system — get the foundation wrong and every rate built from it is wrong too. Solvability’s Rate & Pricing Model is built on federal cost accounting rules, backed by deep knowledge of GovCon accounting practice, so small federal contractors can trust the rates they’re pricing with.