What is Labour Recovery Accounting?

Labour Recovery Accounting: The automatic re-posting of wages from your Profit and Loss (P&L) to actual job costs.

Posting wages to your P&L is usually a business expense, so you want it to be as less as possible. This affects your net profit, not your gross profit. And as a business owner you want to make as much profit as possible, yes?

The reality is, wages get used on jobs and production work orders and the cost of goods you sell. These are often cost of goods sold (COGS) and need recovering. But how do you start recovering wages from the past?

Many systems don’t have an automated labour-recover function, inhibiting your business. These wages are often accounted for by a journal at End of Month (EOM). Yet sometimes, they are not accounted for at all!

Accentis Enterprise can help your business fix all that.

If you don’t account for your wages at the EOM, your gross profit is incorrect. The total will be too high because the actual labour you have used is not accounted for in the final cost.

This will affect your business’ profitability. It will also hinder your ability to forecast finances and make business decisions. It will also make it difficult to budget for jobs to quote.

You will find labour recovery accounting in a large range of business industries. Any production, assembly, manufacturing or service industry business can utilise it.

Labour Recovery Rate

Production and service industries take payment for goods and services in many ways. It is either over an extended period, or after the work has finished and needs invoicing.

The value of labour needs recovering (deducted) from your wage expenses. Then it needs allocation to the job or work order to calculate the correct product wage costs. Think of it as the balancing of your accounts in a sense, but after the work is done.

Accentis Enterprise will auto-recover labour from expenses in a couple of ways. It can track labour through timesheet entries or by having a labour component on a Bill of Materials. Recording of this information can be simple and seamless, retaining your workplace efficiency. This is then posted to the appropriate COGS (or to stock on hand if the item is still in stock).

Job cost rates are often calculated as more than an employee’s standard hourly rate. This covers expenses that come with the employees position based on legal requirements. These expenses are superannuation, annual leave, payroll tax and workers compensation.

Benefits of Recovering Labour Wages?

The real benefits of recovering your wages are simple and straightforward. These are:

  1. Your Cost of Sales will be accurate
  2. Your Gross Profit Margin on Sales of Goods will be accurate. You can compare your profits on a manufactured product with a purchased version of the same. Why manufacture an item when it benefits you more to buy and sell it?
  3. Your Wage Costs Overheads will wash out automatically. The difference between the actual wages recorded, and wages you have recovered are overheads.

For example:

  • Your wage bill for the month is $100k
  • $80k of that wage bill is re-posted to COGS as a result of actual labour consumed on production or jobs
  • The $20k left over is a wage cost not used to produce goods. I.e. your genuine employment overhead, which is a non-productive cost you want to minimise

When you recover labour as a business you can generate a better profit. This is because you will be more aware of the goods and services that generate it.

You Need Correct Timesheet Accounting

Timesheets and recording of time and attendance are important to business accounting. Even more so when you need to recover wages to make your profit more realistic.

The business performs better when an employee gets paid for the work performed. Allocating wages to a specific job helps to recover that labour and account for the charge.

One feature to help with labour recovery is the use of timesheet and time clock recording. Record the start and end times of work performed for accurate charging needs. Using timesheet recordings will make this more efficient and easier to track.

Accentis Enterprise has an integration with Aussie Time Sheets biometric hardware. This allows for accurate and up-to-date tracking of time spent working on a job. The use of biometrics ensures false logging of man power is non-existent.

Payroll will easily manage and account for all time worked for a job. Seamless sharing between modules ensures data is available as needed in an instant.

In Conclusion

Labour recovery accounting should be in use by any business that wants to be aware of their profit drivers. Recovering labour gives you the most profitable products and services the business provides. It also allows you to make informed financial decisions on how to increase profit for you.

If you want to grow your business, you need to attribute labour to the correct wage accounts. This will improve your P&L report which makes your business more successful.

By integrating a biometric scanner, your staff hours will be accurately logged. Improved recording of timesheets will minimise mistakes that occur with manual timesheet processes.

Accentis Enterprise ERP system has many features to help you achieve better results. A fully-integrated software solution to manage your entire business.

More technical information and examples are available on our website. You can view the topic in the Accentis Enterprise User Guide.

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