Labor burden is the additional employer expense of payroll. Additional employer expenses of payroll include things such as unemployment tax, employer paid health insurance, and employer 401k contributions.
What is ELB?
- ELB is an Estimate of the labor burden. ELB is only used when processing payroll in Successware, not when manually posting payroll Journal Entries in Successware.
- ELB will allow the user to post an Estimate of the additional employer expenses to the departments on the income statement.
- ELB will NOT allow the user to post actual expenses to the departments, to do this the customer would need to use a journal entry. ELB is not used for paycheck deductions or withholdings.
How ELB Works
Each employee gets a wage for the time that they work. In addition to the employee's wage, you pay the employee’s health insurance, make a 401K contribution and pay payroll taxes. This is the additional payroll expense.
If you add the additional amount for these expenses, you will be able to see the actual wage of the employee. The difference between the actual wage and the wage is the labor burden.
Successware will allow you to define a Labor Benefits Multiplier (LBM Preset). The LBM Preset is used to estimate these expenses.
The estimated labor burden will be calculated as: ELB = (Earnings * LBM) – earnings
Example:
You have an employee that earns $18.50 an hour. In addition to the hourly rate you pay the employee’s health insurance, make a 401K contribution and pay payroll taxes.
Once you add these extras, the employee’s actual per hour cost to you is $23.13 per hour.
This difference of $4.63 per hour or 25% is your Labor Burden.
Setup
ELB is set up in Payroll setup.
If you choose to post payroll with the ELB, you may choose to:
- Post the ELB into a specific ELB general ledger account. This option keeps the ELB separate from job cost.
- Post the ELB with earnings/wages to the accounts specified on the pay items recorded on timecard and miscellaneous wage entries. This option will include the ELB as a part of labor job cost.
If you decide to post an ELB with your payroll, you must set up a Labor Benefits Multiplier (LBM Preset). (The LBM Preset is used to estimate these expenses).
Average LBM: Your company’s Average LBM is used to monitor the LBM Preset to ensure that it provides a reasonable estimate for General Ledger posting. The average is calculated based the history of previously posted and reconciled payroll periods. You may specify how many months of history you wish to use to calculate the average LBM.
Warning Threshold: You may specify a Warning Threshold that Successware will use to decide when to warn you to adjust your LBM Preset. You will be warned to adjust your LBM Preset during reconciliation if:
- Average LBM < (LBM Preset – Threshold)
- Average LBM > (LBM Preset + Threshold)
A threshold of 1.0 would be less sensitive than a threshold of 0.01.
General Ledger Effects of Posting ELB
The General Ledger that the ELB will hit will depend on which option you chose in the payroll setup. There are two options to posting ELB:
- Post the ELB into a specific ELB General Ledger account, which means you will define which General Ledger account all of the ELB postings will go into.
- Post the ELB with earnings/wages to the accounts specified on the pay items recorded on timecard and miscellaneous wage entries. This means that the ELB will hit the General Ledger accounts associated with the actual timecards or miscellaneous wage entries, rather than one specific General Ledger account.
If your LBM is not the same as the actual labor burden then the amount of ELB that is departmentalized will not be correct, but the Income statement totals will be for all departments. Once you post the payroll period it will post entries that hit the expense accounts (departmentally) based on the General Ledger setup option that was chosen and offset the entry to the accrued payroll. When payroll is reconciled, this entry is reversed for department 00.
Example 1 Reconciliation Posting:
In this example we are posting ELB using the default General Ledger account.
- This is an example that shows how ELB is departmentalized when the payroll is posted.
- In the circled example you can see the wage and the ELB associated with it as well as the posting to accrued wages.
Example 1 Period Posting:
On the reconciliation you can see that it reverses the entry from accrued wages General Ledger account and the ELB General Ledger account for department 00.
Example 2 Reconciliation Posting:
In this example we are posting ELB as indicated by the pay items for timecard and miscellaneous entries.
This will be posted by department for each timecard entry.
Notice that the ELB amount is included in the total for each General Ledger account, it is not hitting a separate General Ledger account.
Example 2 Period Posting:
You can see that the total that was posted into accrued payroll comes out of the accrued payroll General Ledger account when reconciled.
With this method the total that was entered into the various General Ledger accounts will hit the labor burden applied General Ledger account rather than reversing out of the specific General Ledger account it was posted to originally.
The reversing entries to Accrued payroll and Labor burden applied will be posted for department 00.
If there is a discrepancy between the ELB posting and the actual posting for Labor burden the total for Labor burden applied and the departmentalized totals will zero each other out, but the departmental totals will be overstated or understated.
Summary
- ELB allows you to post an estimate of the departmentalized additional expenses to the General Ledger account(s) on the Income Statement based on two options, a default account and the pay items.
- The ELB postings will zero themselves out in the General Ledger but will not zero out by department.
- If there is a discrepancy between ELB and Actual Labor Burden it will cause the department totals to be incorrect, but the totals for the Income Statement will be correct for all departments.
- Reconciling the payroll in Successware will not allow you to departmentalize the additional expenses, this is why we have the ELB available.