Strategic Consulting Solutions, Inc.

Overhead or G&A – Where does it belong?

Allocation ButtonOverhead and G&A are terms you hear all the time in government contracting, whether if you’re in the accounting department, business development or writing proposals.  While they are similar in that they both represent indirect costs to the company, by a virtual show of hands, how many can tell me that they could differentiate between the two or correctly classify the types of costs that belong in each?  Ah, exactly as I thought.  I do not have a quorum.

Let me first say that in small companies it can be difficult to distinguish between the two, and early on in a company’s existence it may not make sense to break the two out into separate cost pools.  There is nothing wrong with having one single G&A rate/pool when first starting out.  When things get rolling and you find yourself having more direct costs in addition to labor, you may find that breaking out the Overhead from G&A will allow you to recoup some of the cost associated with processing those direct costs to which G&A can be applied.

What is Overhead?  It is generally cost that supports the direct cost or revenue-generating projects of the company.  You can think of it this way; if the company had no jobs/projects, they would have no overhead expenses.

What is G&A?  General & Administrative costs are those that support the overall management and operation of the business.  A company would still have G&A expenses even if there were no billable work.

Now let’s look at the types of costs that get classified to one or the other, and in some cases can reside in both.   Labor is a good place to start.  Generally, if an employee works on direct labor projects, any indirect labor or expenses they incur would be charged to an Overhead account(s).  Likewise, if a person typically does not work on direct projects, their time would be considered G&A and should be charged accordingly, along with any expenses that they might incur.

A number of indirect expenses the company incurs will “follow the employee.”  For example something like a cell phone cost or reimbursement would be charged to the cost pool the employee typically charges their indirect labor to.  For that reason, many accounts in the chart of accounts can exist in both pools – one for Overhead and one for G&A.  Other expenses – legal expense, bank fees, liability insurance, etc – exist for the benefit of the entire company and reside only in the G&A account section.

Hopefully this has helped clarify what might have been confusing or difficult to understand.  The next time you hear someone say “Just charge it to Overhead or G&A, it doesn’t really matter”, make sure you tell them that you know the difference and will be glad to help them figure it out.  Or you can have them call SCS.  We’ll be glad to help!

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