Q. A quick question on overtime premium.  We have always charged it as a Direct charge to a contract (as ODC). I see some companies charge it as a cost to their overhead pools but I disagree because 1) it is directly identifiable to a job and therefore, a direct cost and 2) in the case of cost plus fixed fee and time-andmaterials jobs, it is unallowable unless an approval for OT is received. I can’t see how you can take an otherwise unallowable cost & make it allowable by charging it to the OH pool. Can it be an OH cost and charged indirectly?

A. Whether or not OT would be considered unallowable on a particular contract comes down to what are your firm’s accounting practices - if OT is considered a direct cost, then yes it should be considered an unallowable cost for those contracts that don’t allow for it. However, if your accounting practices are to charge OT indirect then, which is a commonly accepted practice, it should be allowable. After all, for example, if an employee working ten hours in a day works on two or more jobs, then how do you decide what job incurred the OT? That’s a common justification for charging it indirect.

The fact the OT costs may not be reimbursable as a direct cost on a particular contract does not mean they are or should be unallowable as an indirect cost. The fact that OT costs are commonly not reimbursable is one of the reasons it is usually charged indirect. Alternatively, your accounting practice could be to treat OT both ways - direct when a contract calls for it and indirect in other circumstances.  That way, you could have it both ways.

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