Folks, if you are working in Staffing / recruitment agency , the below are the finance terminologies that you should know . It's just not the Profit or Loss. You need to know atlleast 10 to 15 terminologies when you converse with your client or the finance team in your organisation. Basic understanding of math is required to understand the following terms. Let's see what they are.
1. Bill rate : This is the term used to denote the amount thats billed to any client. Say you bill Rs. 50K for a candidate per month , this amount should be called as Bill rate . The rate at which the client is billed per month or per hour as the case may be. When you deal with some US based MNCs, you get per hour billing. But in India normally , we follow, per month billing.
2. Pay rate : What is the amount that you have negotiated with the candidate ? Say you agreed to pay Rs 25K per month to the candidate then , this amount is your pay rate. This can be some times in hourly basis.
3. Burden or Cost of employment : You may add around 15% to 20% to the pay rate to cover up cost like medical insurance , Sick leave and other benefits. This cost is to be borne by the vendor company.
4. Gross Profit Margin: Gross Profit Margin is the difference between the cost of employing and paying a contractor and the bill rate. The formula looks like this: GPM = Bill Rate - ( Pay rate x Burden)
In our case,
Bill rate : Rs 50 K
Pay Rate : Rs 25k Burden : 15% = ( 1.15) is the multiplication factor, So Gross Profit Margin : Rs 50k - (Rs 25 K*1.15) = Rs 21,250/-
5. Mark up : Mark-up is the percentage difference between the payrate and the billrate. The equation is (Bill Rate/PayRate). In our example. Rs 50k / Rs 25k = 2 which is 100% You may please note here : Mark-up is often confused with GPM, and the difference is very large. Mark-up doesn't take into account any costs of employing a contractor.
6. Gross Profit percentage : The Equation is figured by taking the GPM and dividing it by the Bill Rate. In our case , it is Rs 21250 / Rs 50000 = 0.425 , which means 42.5 % is the Gross profit margin
Now lets see the difference between Net Profit and Gross Profit
7. Gross profit = Sales revenue – Cost of sales and Other Direct Costs which is also Bill Rate - ( Pay rate x Burden)
Net Profit : Gross profit - Pre -Tax Profit ( This is generally calculated with the help of finance team . Please take their help.)
8. Service Tax - Service Tax means, The person who renders the service he is liable to collect the Service tax from the client which is payable to Government of India. The service tax amount is Service Tax -12% & Cess-3%, When you bill your client , you are supposed to add the service tax to the invoice.
So if the Bill rate is Rs 50 K per month , the service Tax is calculated in the following way :
Bill Rate : Rs 50,000.00
Service tax : 10 % Education cess : 3% of 10%
So now the invoice amount is Rs 50000 + ( 50,000 * 10.3%) = Rs 50,000 + 5150 /- = Rs 55,150/-
9. TDS ( Tax deducted at source) : Is the amount which is deducted by anybody (Individual/Firm/Organisation) who is having a valid TAN No. and have a valid contract with the assesse as per the rates defined by the finance ministry and the amount is being credited in govt. a/c by the tax deductor and issue a TDS certifiacte to the assesse.
10. TAN : TAN is the abbreviated form of Tax Deduction and Collection Account Number. It is actually a unique ten digit alpha-numeric (comprising both alphabets and numerals) number, allotted by the Income Tax Department of India. A TAN is mandatory for every individual who is entrusted with the responsibility of deducting or collecting tax at source, on behalf of the Income Tax Department of India. Moreover, according to the provisions of Section 203 A of the Income Tax Act, it is obligatory to quote the TAN in all TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) return (including e – TDS/ TCS return).
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