Business owners who use QuickBooks or Enterprise accounting software can benefit greatly from the built-in job costing features such as its ability to assign payroll and payroll tax costs to jobs – but there is one major flaw built into those ‘normal’ job cost reports that you need to know about!
This critical weakness means that you need to make your internal labor cost analyses a priority. Why?
The Benefits of a Labor Cost Calculator
You’ve heard the phrase “Garbage in – Garbage Out”. Well, the opposite is true as well. If you enter high-quality data into your QuickBooks accounting system, your output (reports) will be more accurate. And when your reports are more accurate, you’re in a position to be able to make better estimating and pricing decisions.
The goal of using QuickBooks and Enterprise for job-costing, is to allow you to see ALL of your production costs for each job. As a result, the software is designed to help you quickly and efficiently assign costs such as direct labor payroll, payroll taxes, subcontractor costs, materials, and other job-specific costs to individual jobs. But, unless you perform some external calculations and make one more labor cost assignment within QuickBooks, you’ll be missing one vital job-cost element – a significant cost component that accountants call ‘labor burden cost’.
If you’d like to learn more about labor burden and how to easily and effectively calculate YOUR labor burden, click here to learn more about our labor cost calculator.
Please be alert to the fact that, if you’re missing this critical labor burden element you’re not seeing (to borrow from the famous radio announcer Paul Harvey) “the rest of the job-cost story”.
What Costs Should a Labor Cost Calculator Include?
Most business owners fully understand that the more specific their cost breakdown, the more detailed their job cost reports will be, and the more accurate their future estimated costs and pricing will be. But many aren’t aware that employee labor burden cost should also be ‘pooled’, tracked and, ultimately, assigned to individual jobs.
What’s labor burden cost? In addition to the payroll and payroll taxes that QuickBooks can automatically assign, labor burden encompasses costs such as
- Paid time off (holiday, vacation, sick time, etc.),
- Benefits such as workers’ compensation, health insurances, retirement benefits, union costs, and bonuses
- Employee training, support, and supervisory cost
- Uniforms, small tools, equipment and vehicles utilized and, in some situations, facilities costs.
- A variety of other costs may also be included.
Because these are all employee-related, these costs all need to be calculated for individual employees and ‘spread out’ (allocated) to the jobs that each employee works on.
What will a Labor Cost Calculator Tell You About Individual Employees?
After you use a labor cost calculator to compute additional labor burden costs for each employee, you’ll be able to evaluate multiple aspects of employee costs that go beyond his or her base compensation, such as:
- What do health benefits, insurances, and retirement benefits cost for that employee?
- What does overtime ‘really’ cost for that employee (it may be far lower than you think!)
- Is it smarter to extend hours for an existing employee, hire another employee, or simply outsource additional labor?
- Is a higher-rate employee handling work that could be assigned to someone with a lower labor cost? (You’ll be able to decide at a quick glance which tasks are best for each workers’ time.)
How Labor Cost Calculator Results Can Change Your Estimates
…… and your QuickBooks & Enterprise Job Cost Reports
After computing additional labor burden costs, you can then use QuickBooks to assign the correct ‘fully-burdened’ costs out to individual jobs.
As a result, computing and adding specific numbers from labor-burden calculations will help you see your complete job costs. When you use ‘fully burdened’ costs in both your estimates and actual job-cost reports, you’ll not only be able to see what your true job costs are per project, you’ll also be able to determine whether individual employees are saving or costing you money on individual jobs.
You can also use your results to summarize and average your results based upon employee positions or by department (useful for estimating, when you don’t which specific employees you’ll be assigning to a job).
Whether you add labor-burden calculations to your existing QuickBooks or Enterprise job-cost data or you just want to know your fully-burdened employee labor cost, you can have the answers at your fingertips when it’s time to figure out future job cost and pricing estimates.
If you’d like to learn more about labor burden and how to easily and effectively calculate YOUR labor burden, please click here and learn more about our labor burden calculator.