Glossary

Overhours Billing

Overhours Billing

What is Overhours Billing?

Overhours Billing is the process of sending out a bill or invoice to a customer to charge them for the overtime use of certain products or services. In the construction equipment rental industry, Overhours Billing refers to charging a rental customer for usage beyond the agreement terms. It is a difficult cost for rental customers to anticipate and is often a surprise expense on rental invoices.

What else should you know?

As you enter a rental agreement, there’s more than just the base rental rate. Key components of a rental agreement include:

  • Base Rental Rate
  • Surcharges
  • Taxes
  • Additional Terms and Conditions

Within terms and conditions, you are normally agreeing to a standard amount of usage per week, as determined by a number of shifts. These shifts are then connected to a range of allowed utilization hours of any specific machine. A snapshot of that table, is below.

Note that each row, above, equates to 1,2 or 3 shifts per day (per week). The first row represents one shift per day (which equates to 40 hours of potential utilization per week), while the second row represents two shifts and the third row three shifts (or greater).

The first column is the “Rate Multiplier” column and is critical in calculating Overhours Billing. It is multiplied by the base rate to calculate the Base Rental Rate part of your invoice. This is used by rental suppliers to ensure that increased utilization equates to a higher total rental rate expense.

Let’s illustrate via an example. Say that your base rate is $1,000 per week and your agreement assumes 1 shift per day. The total expense per week would be:

Rate Multiplier x Weekly Rental Rate = 1.0 x $1,000 = $1,000 per week

Since 1.0 represents expectations of 1.0 shift per day, and it was inline with agreement expectations, all is well.

Now, let’s say that one week you use the machine 45 hours, pushing your rate multiplier from 1.0 to 1.5 using the table above. In this bill the math would be:

Rate Multiplier x Weekly Rental Rate = 1.5 x $1,000 = $1,500

The additional $500 would be considered Overhours Billing, or the gap between agreement expectation and above expected equipment usage.

 

Why Do Rental Companies Charge More for Increased Use?

One of the biggest misconceptions about Overhours Billing is that equipment rental companies charge for various extras to make a quick buck.

Overhours Billing comes down to the fact that equipment owners need to cover fixed and operating costs of equipment for a particular time period that exceeds the one set in the rental agreement. That’s especially important in case of harsh equipment usage during overtime, which would incur higher maintenance costs and potentially expensive repairs.

Some of the expenses construction equipment rental companies need to cover include:

  • Costs of fuel
  • Maintenance
  • Repairs
  • Storage
  • Insurance
  • Interest rates of investments
  • Taxes
  • Equipment depreciation
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