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Implementing Overtime Charged to an Indirect Project (Case Study)

If you charge overtime costs to an indirect project, you can use Oracle Projects to record the premium your business pays employees for overtime hours they work. Your business can then recover overtime costs with higher bill rates or higher overhead rates.

This section describes each implementation step you need to complete to set up Oracle Projects to charge overtime costs to an indirect project. Each step includes an example of how Fremont Corporation implements overtime.

Fremont Corporation records all overtime labor hours in one indirect project. Fremont regards these hours as overhead, and does not directly bill clients for overtime premiums. (Fremont accounts for overtime labor cost in its bill rates.)
Fremont implements the Oracle Projects Overtime Calculation extension to calculate overtime hours automatically.

Complete the following steps to implement an indirect project to collect overtime premium costs:

Implement the Overtime Calculation extension

You can specify the way you want to use the Overtime Calculation extension in the Implementation Options window. See: Enable Overtime Calculations and Overtime Calculation Extension.

Fremont uses the standard Overtime Calculation extension without modifying it. The extension already recognizes the kinds of overtime Fremont uses.
Note: If you want to use the standard Overtime Calculation extension without modifying it, you must define the compensation rules, Overtime expenditure type, and overtime project and tasks just as Fremont Corporation does.

Define overtime expenditure types

You need to define at least one overtime expenditure type. You use the Expenditure Types window to define overtime expenditure types classified by the Overtime expenditure type class. See: Expenditure Types.

Fremont's implementation team defined one overtime expenditure type.
Name Overtime
Expenditure Type Class Overtime

Define compensation rules

You define compensation rules to identify different pay types. Each employee is assigned a compensation rule, which determines how Oracle Projects calculates overtime for each employee.

You use the Compensation Rules window to define compensation rules. See: Compensation Rules. Use the Employee Cost Rates window to assign each employee a compensation rule and an hourly cost rate. See: Employee Cost Rates.

Fremont uses three pay types to determine how an employee is paid. Fremont defined the following three compensation rules during an earlier phase of its implementation of Oracle Projects.
Note: These compensation rules are referenced in the Overtime Calculation extension. If you define different compensation rules, you must change the Overtime Calculation extension to reference your compensation rules.
Compensation Rule
Name Exempt
Overtime Expenditure Type Overtime
Compensation Rule
Name Hourly
Overtime Expenditure Type Overtime
Compensation Rule
Name Compensated
Overtime Expenditure Type Overtime

Define labor cost multipliers

For each type of overtime your business uses, you need to define a corresponding labor cost multiplier. Later, you assign the appropriate labor cost multiplier to each overtime task.

You use the Labor Cost Multipliers window to define labor cost multipliers. See: Labor Cost Multipliers.

Fremont defines a labor cost multiplier for each kind of overtime it uses.
Name Multiplier
Time and Half 0.5
Double Time 1.0
Uncompensated OT -1.0
Uncompensated overtime uses a multiplier of -1.0 to create a negative overtime cost in the overtime project. The negative cost reverses the straight time cost charged to the project on which the employee worked. The total cost for an employee's uncompensated overtime is, thus, $0.00, since the overtime cost reverses the straight time cost.

Enter one or more overtime projects

You can define one indirect project to hold all of your company's overtime costs, or you can define many indirect projects - one for each group or office of your company - to make it easier to enter and report overtime by group or office. For example, you can create an overtime project for each office. You then charge each employee's overtime hours to the overtime project for the office to which they are assigned.

If you decide to use more than one indirect project to hold your company's overtime costs and you are using automatic overtime calculation, you must include the logic in your Overtime Calculation extension to charge the overtime hours to the appropriate overtime project.

You use the Projects window to define your overtime projects. See: Project Entry.

Fremont Corporation uses just one indirect project to record overtime hours.
Note: This project number is referenced in the Overtime Calculation extension. If you define a different project number for your overtime project, you must change the Overtime Calculation extension to reference that project.
Project:
Number OT
Name Overtime Premium
Description This project is the corporate bucket for all overtime labor hours
Organization Human Resources
Status Permanent
Public Sector No
Type Overhead

Define overtime tasks

For each overtime project, you must define a task for each type of overtime your business uses. Different types of overtime use different labor cost multipliers to calculate overtime costs. Examples of overtime include the following:

If you are using automatic overtime calculation, you must include the logic in your Overtime Calculation extension to charge overtime hours to the appropriate overtime task.

You can use either the Tasks option of the Projects window to define overtime tasks. See: Entering Tasks for a Project.

Note: These task numbers are referenced in the Overtime Calculation extension. If you define different task numbers for your overtime project, you must change the Overtime Calculation extension to reference those numbers.
Fremont defines a task for double time overtime. The Overtime Calculation extension recognizes employees with either the Compensated or Hourly compensation rule as eligible for double time.
Task
Task Number Double
Task Name Double Time
Description Double time overtime labor hours
Organization Human Resources
Service Type Overtime
Fremont defines a task for time-and-half overtime. The Overtime Calculation extension recognizes employees with either the Compensated or Hourly compensation rule as eligible for time and a half.
Task
Task Number Half
Task Name Time and Half
Description Time and a half overtime labor hours
Organization Human Resources
Service Type Overtime
The third project task is for uncompensated overtime; the Overtime Calculation extension recognizes employees with the Exempt compensation rule as not eligible for overtime.
Task
Task Number Uncomp
Task Name Uncompensated
Description Uncompensated overtime labor hours
Organization Human Resources
Service Type Overtime
Task Number Uncomp

Update compensation rules

You need to update your compensation rules by specifying an overtime project as a default project. If you do not specify a default project, you cannot assign labor cost multipliers to the overtime tasks in that project.

Listing an overtime project in each of your compensation rules identifies that project as a project for recording overtime, and thus, a project for which you can assign labor cost multipliers to overtime tasks.

If you use manual overtime calculation, the project you specify as a default displays in the Expenditure Items window when you enter an employee's overtime hours in Oracle Projects. (You can override this value if you like.)

You use the Compensation Rules window to update your compensation rules.

Fremont uses the Compensation Rules window to list the Overtime Premium project as a default project in its compensation rules.
Fremont specifies the expenditure type it defined with the Overtime expenditure type class for all three of its compensation rules.
Since employees with the Hourly or Compensated compensation rule are eligible for either time and a half or double time overtime, Fremont does not specify a task name for either of these rules.
Since employees with the Exempt compensation rule are not eligible for overtime compensation, their overtime hours are always charged to the Uncompensated task. Fremont, therefore, specifies this task for the Exempt rule.
Compensation Rule
Name Hourly
Overtime Expenditure Type Overtime
Defaults for Manual Overtime Expenditure Entries
Project Number OT
Project Name Overtime Premium
Task Number  
Task Name  
Compensation Rule
Name Compensated
Overtime
Expenditure Type Overtime
Defaults for Manual Overtime Expenditure Entries
Project Number OT
Project Name Overtime Premium
Task Number  
Task Name  
Compensation Rule
Name Exempt
Overtime Expenditure Type Overtime
Defaults for Manual Overtime Expenditure Entries
Project Number OT
Project Name Overtime Premium
Task Number Uncomp
Task Name Uncompensated

Assign a labor cost multiplier to each overtime task

For each overtime project, you assign the appropriate labor cost multiplier to each overtime task.

After you specify an overtime project in the Compensation Rules window, you can assign a labor cost multiplier to each task in that project using the Task Details window in the Projects window. See: Entering Tasks for a Project.

Note: The Labor Cost Multiplier field is available only for lowest tasks on projects you specify as part of a compensation rule.

Oracle Projects calculates the cost of an overtime item based on the labor cost multiplier of the task to which you charge the item.

For double time overtime, Fremont records a premium amount equal to an employee's labor cost, thus doubling the total costs.
Project
Number OT
Name Overtime Premium
Task
Number Double
Name Double Time
Labor Cost Multiplier
Name Double Time
Multiplier 1.0
For time and a half overtime, Fremont records an additional one half the employee's labor cost for every overtime hour the employee works.
Project
Number OT
Name Overtime Premium
Task
Number Half
Name Time and Half
Labor Cost Multiplier
Name Time and Half
Multiplier 0.5
For uncompensated overtime, Fremont records a negative premium amount to reverse the straight time costs of the overtime hours charged. (Fremont does not incur overtime costs for an Exempt employee's overtime hours.)
Project
Number OT
Name Overtime Premium
Task
Number Uncomp
Name Uncompensated Overtime
Labor Cost Multiplier
Name Uncompensated OT
Multiplier -1.0

Implement AutoAccounting to charge appropriate expense accounts

When you implement AutoAccounting, you can charge straight time costs to a labor expense account and overtime costs to an overhead or overtime expense account.

To charge straight time and overtime to different accounts, you define an AutoAccounting rule based on expenditure type, expenditure category, service type, compensation rule, or labor cost multiplier. See: Accounting for Labor Costs.

Or, if you want to charge all labor costs to one account, you can define a constant rule.

Fremont implemented AutoAccounting to use the service type to charge overtime labor costs to the following expense account: 5173 - Overtime Labor Costs .
Each of the three overtime tasks (Double Time, Time and Half, and Uncompensated) uses the Overtime service type.

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