Example of Labor Costing through Work Orders

Here are some examples of labor entries through the work order system. You must be using WIP method 'I' to do any labor costing.

The sale account which is used within the Service Department to record the sale of labor requires an application type of 'PARTS' to perform labor costing. Subsequently, the sale account being used requires an 'Inventory' and Cost Of Sales account to be loaded on the sale account. For this reason, most people create either an inventory account which appears on the balance sheet or an expense account. The Payroll system debits this account when the technician is paid, which occurs because this account is also loaded on the 'Classes' configuration record for the service employees. When the labor is posted to a work order it credits labor inventory and debits to WIP, and when the work order is closed it credits WIP and debits cost of sales. Therefore, the labor inventory account should be drained to zero before each pay period. This occurs because when you pay the technician 40 hours, and then you charge out 40 hours onto work orders, the end result is zero left in labor inventory. However, this theory assumes that your work order cost loaded on the employee master is the same as the pay rate for that technician.

Note:  If you are not using the Legacy Payroll Module, you must manually make an entry to Debit the Unapplied Labor account and then credit the bank account (or salary expense account).

Example When using Legacy Payroll

Employee 00002

Profit center 041

Class 4 (from the class table earnings are posted to 50801 041)

Hourly pay rate $9.00

Work order rate per hour $59.00 (rate to be charged on customer work orders)

Labor Sale Account 3810041

Work order cost amount: $11.50

Entry on BIL900 in Parts Billing Run Description Calculation

5 hours posted to work order at customer rate

38100 41 Labor 500 295.00- Labor rate 5 * $59.00 W/O rate
18800 57.50- Labor inventory, loaded on sale account 5 * $11.50 W/O cost
17820 57.50 Labor WIP account from WIP table 5 * $11.50 W/O cost
38100 41 $$$WIPINVENTORY 500- 295.00 Labor sale for employee maintenance 5 * $59.00 W/O rate

8 hours posted to work order at sick time
38100 41 Labor 800 72.00- Labor sale from employee maintenance 8 * $9.00 Hourly rate
18800 92.00- Labor inventory, loaded on sale account 8 * $11.50 W/O cost
17820 92.00 Labor WIP account from WIP table 8 * $11.50 W/O cost
38100 41 $$$WIPINVENTORY 800- 72.00 Labor sale from employee maintenance 8 * $9.00 Hourly rate

Entry on BIL900 in Work Order Billing Run Description Calculation

38100 41 $$$WIPINVENTORY 500 295.00- Labor sale from employee maintenance 5 * $59.00 W/O rate
17820 57.50- Labor WIP account from WIP table 5 * $11.50 W/O cost
48100 41 57.50 Labor Cost of Sales from sale account 5 * $11.50 W/O cost
38100 41 $$$WIPINVENTORY 800 72.00- Labor sale from employee maintenance 8 * $9.00 W/O rate
17820 92.00- Labor WIP account from WIP table 8 * $11.50 W/O cost
48100 41 92.00 Labor Cost of Sales from sale account 8 * $11.50 W/O cost
17805 PAYROLL NOTE 367.00- Work in process account from CASHTAB $295.00 + $72.00
17805 367.00 Reversal of WIP when work order was closed $295.00 + $72.00
10400 PAYROLL NOTE 367.00 Customer account from closed work order Total of all sale amounts, taxes, etc

On payroll run

Code	Description	Regular	Adjust
0001	Regular Hours	5.00	5 Hours regular time
0010	Sick Time Hours	8.00	8 Hours of sick time
0021	Regular Earnings	45.00	5* $9.00
0033	Paid Sick Time	72.00	8* $9.00
9044	Prov/State Tax	1.98	calculated State/Province tax deducted from employee
9046	FICA	1.70	7.25 calculated FICA amount deducted from employee
9073	401K Deduct-Match	52.65	45% calculated deduction, loaded on earn/dedn maintenance in payroll

Payroll Journal

Description	Cost Center	G/L Account	Debit	Credit
Payrol W/H or W/H Tax		23502		1.98 Liability account table EARNDEDN code 9044
Payroll W/H FICA		23503		17.90 Liability account EARNDEDN code 9046 (employee & employer)
Payroll W/H 401K		23505		55.28 Liability account EARNDEDN code 9073 (employee & employer)
Payroll W/H 401K		23505	2.63	Company expense account EARNDEDN 9073 (employer)
C/Sales Mechanic Labor	41	50801	45.00	Employee earnings from table CLASS
Sick Time	41	50801	72.00	Employee earnings from table CLASS
Payroll Taxes Coos Bay	10	51603	8.95	Company expense EARNDEDN 9046 employer contribution
Cash Health Claims Act		10203		53.42 Employee net pay from SPECACCT table code PAYR
			128.58	128.58

Here is an example of Voucher that needs to be created if not using Payroll plus.

This is just an example and not exactly the entries that should be made, this depends on their earnings and deductions.

Revision: 2026.01