diff --git a/app/models/hourly_rate_observer.rb b/app/models/hourly_rate_observer.rb
new file mode 100644
index 0000000000..2bbb15681a
--- /dev/null
+++ b/app/models/hourly_rate_observer.rb
@@ -0,0 +1,68 @@
+class HourlyRateObserver < ActiveRecord::Observer
+  def after_create(rate)
+    next_rate = self.next_rate(rate)
+    
+    if next_rate.nil?
+      time_entries = TimeEntry.find(:all, :conditions => ["spent_on >= ? AND user_id = ? and project_id = ?", rate.valid_from, rate.user, rate.project])
+    else
+      time_entries = TimeEntry.find(:all, :conditions => {:spent_on => rate.valid_from..(next_rate.valid_from - 1), :user_id => rate.user, :project_id => rate.project})
+    end
+    
+    update_time_entries(time_entries, rate)
+  end
+  
+  def after_update(rate)
+    return unless rate.valid_from.changed?
+    
+    conditions = get_conditions(:valid_from, rate.valid_from_was, rate.valid_from)
+    conditions = conditions.merge({:user_id => rate.user, :project_id => rate.project})
+    
+    if HourlyRate.count(:conditions => conditions) > 0
+      # We have passed the boundary of another rate
+      
+      # First update all entries that were previously assigned to the current rate
+      old_next_rate = self.next_rate(rate, rate.valid_from_was)
+      if old_next_rate.nil?
+        time_entries = TimeEntry.find(:all, :conditions => ["spent_on >= ? AND user_id = ? and project_id = ?", rate.valid_from_was, rate.user, rate.project])
+      else
+        time_entries = TimeEntry.find(:all, :conditions => {:spent_on => rate.valid_from_was..(old_next_rate.valid_from - 1), :user_id => rate.user, :project_id => rate.project})
+      end
+      
+      update_time_entries(time_entries, previous_rate(rate, rate.valid_from_was))
+      
+      # Now update all entries that are newly assigned to the current rate
+      after_create(rate)
+    else
+      # We have only moved the rate without passing other rates
+      conditions = get_conditions(:spent_on, rate.valid_from_was, rate.valid_from)
+      conditions = conditions.merge({:user_id => rate.user, :project_id => rate.project})
+      
+      time_entries = TimeEntry.find(:all, :conditions => conditions)
+      update_time_entries(time_entries, (rate.valid_from_was < rate.valid_from) ? previous_rate(rate) : rate)
+    end
+  end
+  
+private
+  def next_rate(rate, date = rate.valid_from)
+    HourlyRate.find(:first, :conditions => [ "user_id = ? and project_id = ? and valid_from > ?", rate.user, rate.project, date], :order => "valid_from ASC")
+  end
+  
+  def previous_rate(rate, date = rate.valid_from)
+    rate.user.rate_at(rate.project, date - 1)
+  end
+  
+  def get_conditions(param, date1, date2)
+    if rate.valid_from_was < rate.valid_from
+      {param => date1..date2}
+    else
+      {param => date2..date1}
+    end
+  end
+  
+  def update_time_entries!(time_entries, rate)
+    time_entries.each do |time_entry|
+      time_entry.update_costs!(rate)
+    end
+  end
+  
+end
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