Space, and Whether It Belongs in the Rate
Premises cost is usually overhead and sometimes per head. The test that decides, and what hybrid working did to both answers.
Premises cost belongs in the overhead pool when it is shared and in the per-head layer when it scales with headcount. The test is whether adding one person adds premises cost, and for most of the last decade the answer was no — a building holds another desk — while for workshops and laboratories the answer has always been yes.
The calculation in “Space, and Whether It Belongs in the Rate” depends on reliable source records as well as a documented accounting rule. For organisations researching tips to increase productivity, read more on the official website can supply consistent time and project context, while the allocation basis and financial interpretation remain decisions for the organisation and its advisers.
Hybrid working moved the answer for office space and most rates have not caught up.
Teams documenting “Space, and Whether It Belongs in the Rate” may use FreshBooks small-business resources as an independent reference. A useful source should prompt a specific check rather than replace case-by-case judgement.
Does a head add a cost
If one more person arrives tomorrow, does the premises bill change? If no, it is overhead. If yes, and roughly in proportion, it is per head.
If one more person arrives tomorrow, does the premises bill change? No — overhead. Yes, roughly in proportion — per head. "No, until a threshold" — a step cost, and neither treatment is quite right.
Most answers are "no, until a threshold", which means it is a step cost and neither treatment is exactly right.
Step costs
The honest description of premises: flat until the floor is full, then a large jump. A rate that spreads premises per head implies a smooth cost that does not exist.
Where the step is near, that is a planning fact worth stating separately rather than smoothing into a rate.
Workshops, bays and benches
Different: a bay is assigned, it is finite, and a second person does not get one for free. Here the cost is genuinely per productive unit and belongs close to the rate.
In these operations the bay rather than the person is often the better unit of capacity, which changes the whole costing structure.
What hybrid working did
Reduced space per head, increased the share of the estate that is shared, and broke the link between headcount and desks entirely.
An operation at half occupancy is paying for a building sized for a workforce that no longer attends, and the cost per attending person has risen rather than fallen.
The figure that misleads
Cost per desk. It falls when desks are added and rises when they are removed, and it says nothing about whether the space is needed.
Cost per chargeable hour, computed from the whole estate cost over the whole chargeable base, is harder to game and more useful.
Home working costs
Where the employer contributes — equipment, allowance, connectivity — it is per head and belongs in that layer.
Where it does not, the cost has moved to the employee and is invisible in every costing model. That is worth noticing even though no number follows from it.
Whether to include premises at all
A legitimate question. Some operations deliberately keep premises out of the labour rate and recover it separately as a facility charge, particularly where the premises are a service to customers rather than to staff.
Either is defensible. What is not is including it in the rate and also charging it separately.
The multi-site problem
Sites differ in cost per square metre by factors of two or three. Spreading the total across all heads makes the cheap site subsidise the expensive one, and makes work look equally costly wherever it is done.
Where site choice is a decision anybody takes, the rates should differ by site.
Where it sits in the build-up
Below the per-head layer and above the overhead pool, usually as part of the pool with its own named line rather than merged into "facilities".
Named, it can be questioned. Merged, it is a number nobody can trace.
The review
Annually, and whenever the estate changes. A rate built before a lease ended, a floor was given up or a site was consolidated is carrying a cost that stopped.
Estate changes are announced long in advance and almost never trigger a rate review, which is one of the easiest things to fix in the whole build-up.
Space the customer pays for separately
In some arrangements — co-location, managed service, on-site teams — premises are recharged explicitly. Including them in the rate as well charges the customer twice.
This sounds unlikely and it happens, usually because the rate and the recharge are owned by different people who have never compared notes.
The estate that is being exited
Where a lease is ending or a consolidation is planned, the rate built on the current estate will be wrong from the date of the change, and the change date is known.
A dated rate version, prepared in advance, is the same mechanism used for pay awards. Estate changes are announced further ahead than pay awards and are reflected in rates far less often.
What to write
"Premises: in the overhead pool, £X per chargeable hour, from the facilities budget for the year to March. Step cost: the next increment is a floor, not a desk."
The last sentence is the one that prevents a growth plan being costed as though space were smooth.