Labor Cost Calculators and QuickBooks
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.
QuickBooks Job Costing
The goal of using QuickBooks Desktop and QuickBooks 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 is Labor Burden Cost?
Labor burden cost, often referred to as “labor burden,” is the total indirect cost associated with employing a worker beyond their base wage or salary. It includes various expenses that you, as an employer, must bear in addition to the employee’s compensation. Labor burden costs can significantly impact a company’s overall labor costs and are important for budgeting, cost analysis, and pricing decisions.
Typically, labor burden costs may include:
1. Payroll Taxes
This encompasses various taxes that employers are required to withhold and contribute on behalf of their employees, such as Social Security, Medicare, unemployment taxes, and sometimes state-specific payroll taxes.
2. Employee Benefits
These include expenses related to employee benefits such as health insurance, retirement contributions (e.g., 401(k) matching), paid time off (vacation, sick leave, holidays), and other perks like gym memberships or company-sponsored events.
3. Workers’ Compensation Insurance
Employers are often required to provide workers’ compensation insurance to cover medical expenses and lost wages for employees who are injured on the job.
4. Employer-paid Insurance Premiums
Costs associated with providing insurance coverage for employees, including health, dental, vision, and life insurance.
5. Paid Leave Accruals
The cost of accruing paid time off, such as vacation and sick leave, which employees may use in the future.
6. Training and Development
Expenses for employee training and development programs to enhance skills and knowledge.
7. Administrative Costs
Costs related to HR and administrative personnel, software systems, and other resources required to manage employee records, payroll processing, and compliance.
8. Facilities and Equipment
Expenses associated with providing workspaces, equipment, and utilities for employees, including rent, utilities, and office supplies.
9. Bonuses and Incentives
Any additional compensation provided to employees based on performance or achievement of specific goals.
10. Employee Taxes
Some employers cover certain taxes that employees would normally be responsible for, such as state disability insurance or local income taxes.
Labor burden costs are real costs you must pay to employ that person, so if you don’t include them in your bids, your bids will always underestimate the true cost of that employee’s time, resulting in reduced profits.
It is important that any labor cost calculator include labor burden costs.
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 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 worker’s time.)
QuickBooks Employee Cost Calculator
How Our 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 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 on employee positions or by department (useful for estimating when you don’t know in advance which specific employees you’ll be assigning to a job).
Whether you add labor-burden calculations to your existing QuickBooks Desktop or QuickBooks 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.
Learn More About Labor Burden and Labor Burden Calculation
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.
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