Topic

Messages

Accounting for employee time

03:11pm Jan 17, 2002 PST

I would be interested in suggestions for accounting for employees in C&P. To me there are three options:

- track it all (including benefits, sick time, holidays etc) to cost of sales
- only charge cost of sales with actual billable hours and then expense the rest
- enter employees and all the costs associated with them as an expense and not part of direct costs.

Any other creative ways would be much appreciated! We are a small agency (15 people) and I'm trying to keep it simple.

Elizabeth Love
CSG Inc.

SecondWind (many of know of this organization) says that staff time should always be overhead and never part of direct costs. I have always disagreed with that. I charge employees burdened cost to the job. It's not the most simple way, but you will be glad when you review productivity schedules.

Roxanne Cowan
Rutherford Bolen Group Integrated Marketing

Just to keep it easy I would suggest the following

1) those persons who are directly related to generating income for more than 70% of their job function put them in a direct cost of sales category 2) those person who are not directly related to generating income for more than 70% of their job function should go into operating expenses. 3) if you track owners income or income by group you can further sub divide the above by many parts.

As far as sick time and holidays and etc. I would set up an internal non billable job ticket and add a task for each item that you want to track. If at the end of the year or at an employee review you can separate out by task by employee so you can see the hours that are involved in each of the categories that you pick (for operations)

If you are using an outside agency to do payroll you can have them place the employees in groups so when the journal entry is made you can actually hit the accounts in a summary format.

Also as a quick note you may want to assign job costs to each of the employees for the allocation of overhead. The easiest and most basic way is to take all you indirect costs and compare them to the direct employees costs. Once you get this ratio take that as a multiplier and apply it to the employee's pay rate. This is just a quick way to get reports for each job at the rate that will incorporate all the indirect costs (or operating costs).

I think that will take care of all the items that you mentioned while keeping it simple. I have a spreadsheet that i use for the generation of the journal entries for a payroll entry off the reports that i receive from my outside service. I have 5 departments that are tracked - 1 for each of the 4 groups as well as one that spreads the expense over the 3 cost of sales groups.

William Riendeau
Brown & Company Graphic Design, Inc.

We use #2. I charge payroll directly into cost of sales, then at the end of each month back out non-billable hours into overhead. Non-billable does not mean overruns on a job -- those stay in the job. It's just the various administrative and internal tasks that come out. We're set up as a client with various jobs so these can be easily isolated on the time reports. (n.b.: My costs for the personnel are set up to include an allocation of general overhead and non-billable time, not just straight payroll cost, so the job is effectively charged for "expected" non-billable time. This also reflects in the WIP adjustment at the end of each month.)

Brent A. Byrd
Point Zero, Inc.