Three decisions need to be made to determine your approach to labor costing in Accounting Seed:
  1. What source do I want to use for labor costing in the General Ledger? Payroll or Accounting Seed Time Cards?
  2. Do I want to use standard or actual costing for salaried employees in my project accounting?
  3. Do I want to include burden in my costing rates for project accounting?

1. Labor Costing Source: Payroll vs. Time Cards

Payroll:

This is accomplished by booking a journal entry that debits the appropriate labor expense, benefits, and tax GL accounts.  This data is received from your payroll provider and is the cost of labor in a specific accounting period.

Using a journal entry to record payroll cost will necessitate that you ignore the costing done by Accounting Seed Time Cards for the purposes of financial reporting. The labor costing from Time Cards will still serve as cost data in project job-costing reports and project profitability, however it does not need to be formally reconciled to payroll records.

Pros:
No reconciliation to payroll is needed
Labor costing in projects is more flexible and serves as a theoretical view of project profitability
Less visibility into individual salary data
 
Cons:
Less detail is reported in top-level financials meaning top-level financials will need to include less project specific breakdowns of cost data
 
Implementation:
Labor from Time Cards is constructively excluded from the General Ledger by posting labor to a dummy GL Account and
Contra GL Account. These GL Accounts will be self-balancing in any given accounting period and can be excluded or netted together for a zero balance in any financial report.

Time Cards:

Labor costing from Time Cards is the process by which labor cost is booked to the General Ledger via the posting of Time Cards, and without using the dummy GL and contra GL Accounts as described in the above approach. 

Pros:
Top level financials can be very complicated where labor is assigned to multiple GL Accounts, and GL Account variables such as divisions, departments, cost centers and profit centers
 
Cons:
A reconciliation to payroll records is needed on a monthly basis
Labor costing in projects is less flexible and needs to tie actual expenses incurred
 
Implementation:
The Payroll journal entry would debit accrued payroll or an equivalent payroll clearing account and credit cash. Labor costing entries would be configured to Debit GL Expense Accounts for Labor and Credit Accrued or Payroll Clearing. 
2. Project job-costing for salaried employees: Standard vs. Actual

Accounting Seed has the ability to cost salaried employees at an hourly standard rate or an actual weekly salary rate, they differ in the way the cost rate is calculated. Please note that Accounting Seed supports multiple labor cost rates for hourly employees. 

The following example will illustrate the difference, An employee:

  • Earns a weekly salary of $1000/week ($25/hr)
  • Works 50 hours in a week

The standard work week is defined as 40 hours.

Labor Cost using Standard (hourly) Cost:

  • The hourly cost for this employee is $25/hour.
  • The employee worked 50 hours in one week
  • The cost recorded for this employee = $25 x 50 hrs = $1,250

Labor Cost using Actual (weekly) Cost:

  • The Weekly salaried cost for this employee is $1000
  • The employee worked 50 hours in one week
  • The cost recorded for this employee = $1000

Actual Costing method caps the weekly cost at the amount designated for each employee, regardless of the number of hours worked, and uses the Weekly Salaried Cost divided by the total number of hours worked to calculate the hourly cost.

3. Do I include burden in my project job costing rates?

Burdening costs refers to the inclusion of other overhead costs in your labor costs as a means for allocating those costs across projects.  In Accounting Seed you can include a burden in either the hourly or weekly rate.  If you choose to include burden it is highly recommended that you perform a comparison to actual costs on a quarterly basis and adjust your burden if necessary.

 

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