Overhead & Fringe
Project budgets may include items for overhead costs and fringe benefits.
Most budgets include overhead expenses (also called indirect costs), which allows the project to bear a portion of the administrative costs of the day-to-day operation. Depending on the preference of the funder, overhead can be entered in the budget as one line item, or as separate line items.
Some overhead items may include a percentage of the bookkeeper's salary, board meeting expenses, rent, electricity and the cost of running the human resources department. These are items that are incurred, whether or not you have the particular project for which you are budgeting, and you can't run an organization without these costs. The formula used for allocating overhead costs to project budgets is usually based on the organization's overhead costs to the organization's total program expenses.
Each year XYZ Inc., a nonprofit organization, spends $400,000 on its programs, and
$100,000 in overhead costs.|
What is the overhead rate?
$100,000 / $400.000 = .25
The overhead rate is 25%, meaning that for every dollar the organization spends on its programs,
25 cents is expended for overhead.