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Accounting for Labor Costs

In this section, we describe the AutoAccounting functions that are related to labor distribution and interface to Oracle General Ledger.

Labor Cost Account Function

When you run the PRC: Distribute Labor Costs process, Oracle Projects calculates labor cost amounts based upon employee labor cost rates and compensation rules. After calculating labor costs, Oracle Projects uses the Labor Cost Account transactions to debit an expense account for raw labor costs.

The Labor Cost Account function consists of the following transactions:

The choice of transaction depends upon whether the labor cost corresponds to a public sector or private sector project, a billable or non-billable labor item, and whether it is direct or indirect labor. If your business does not distinguish between specific types of labor costs, you can enable the All Labor transaction.

Fremont tracks its labor costs by company and cost center. Each company and cost center has its own set of labor accounts for private labor costs, public labor costs, and other labor-related costs.
Fremont Corporation uses 12 expense accounts to record raw labor costs:
· Private, Billable Labor Cost (5100)
· Public, Billable Labor Cost (5101)
· Private, Non-Billable Labor Cost (5102)
· Public, Non-Billable Labor Cost (5103)
· Marketing Labor Cost (5150)
· Government Marketing Labor Cost (5151)
· Research & Development Labor Cost (5152)
· Administration Labor Cost (5153)
· Bid & Proposal Labor Cost (5154)
· Holiday Time (5170)
· Sick Time (5171)
· Vacation Time (5172)
· Overtime Labor Cost (5173)
(Refer to Fremont Corporation Set of Books for a complete list of the Fremont Corporation account numbers.)
For contract and indirect labor costs, Fremont's accounting department charges labor costs to the company and cost center for which an employee works. Fremont charges overhead costs to the project-managing organization.
Since Fremont distinguishes between public and private; billable and non-billable; and between contract and indirect labor costs, it enables the six very specific Labor Cost Account transactions rather than enabling only the general All Labor transaction.
Since Fremont's Accounting Flexfield includes a Company segment and a Cost Center segment, one of the first steps to implement the Labor Cost Account function is to specify how to associate specific organizations with specific companies and cost centers. Since each organization is part of a particular company, and each organization has its own cost center, determining company codes and cost centers is not very complex.
Recall that Fremont is composed of four business units: Administration, Fremont Engineering, Fremont Construction, and Fremont Services. Each of these business units is considered a company and has a distinct company code in the Accounting Flexfield. Administration is company 01, Fremont Engineering is company 02, Fremont Construction is company 03, and Fremont Services is company 04.
For both public and private contract labor, Fremont charges labor costs to the company and cost center corresponding to the organization of the employee who performed the labor.
For indirect labor on privately funded projects, such as general administration, corporate marketing, or R&D, Fremont Corporation charges labor costs to specific labor accounts different from the accounts for ordinary project-driven labor. Similarly, Fremont charges holiday time, sick time, and vacation time to other indirect labor accounts.
Fremont uses service types to distinguish different kinds of indirect, private labor costs. Fremont can create a lookup set that maps service types to the appropriate expense account.
To implement the Labor Cost Account function, Fremont's implementation team defines three lookup sets:
· One lookup set to map organizations to companies
· One lookup set to map organizations to cost centers
· One lookup set to map service types to each Fremont's six expense accounts for indirect labor
Fremont defines eight rules to implement the Labor Cost Account function:
· One rule supplies the appropriate value for the Company segment of Fremont's Accounting Flexfield; Fremont uses a lookup set to define this rule
· One rule supplies the appropriate value for the Cost Center segment; Fremont uses a lookup set to define this rule
· Six rules supply the appropriate account code for the Account segment; the indirect, private labor rule uses a lookup set, and the other five use constant values.
Define a Lookup Set:
Name Organization to Company
Description Map organization to the appropriate company code
Segment Value Lookups
Intermediate Value (Organization) Segment Value (Company Code)
Administration 01
Executive Office 01
Fremont Corporation 01
Human Resources 01
Finance 01
Information Services 01
Fremont Engineering 02
Electrical 02
Structural 02
Mechanical 02
Environmental 02
Fremont Construction 03
West 03
Midwest 03
East 03
South 03
International 03
Fremont Services 04
Data Systems 04
Risk Analysis 04
Define a Lookup Set:
Name Organization to Cost Center
Description Map organization to the appropriate cost center code
Segment Value Lookups
Intermediate Value (Organization) Segment Value (Cost Center Code)
Fremont Corporation 000
Administration 100
Executive Office 101
Human Resources 102
Finance 103
Information Services 104
Fremont Engineering 200
Electrical 201
Structural 202
Mechanical 203
Environmental 204
Fremont Construction 300
West 301
Midwest 302
East 303
South 304
International 305
Fremont Services 400
Data Systems 401
Risk Analysis 402
Define a Lookup Set:
Name Indirect Labor Cost
Description Map the service type for labor on indirect projects to indirect cost accounts
Segment Value Lookups
Intermediate Value (Service Type) Segment Value (Account Code)
Marketing 5150
R & D 5152
Administration 5153
B & P 5154
Holiday 5170
Sick 5171
Vacation 5172
Overtime 5173
Define a Rule to Determine Company Segment Value:
Name Employee Company
Description Map an employee's organization to a company
Intermediate Value Source Parameter
Parameter Name Expenditure Organization
Segment Value Source Segment Value Lookup Set
Lookup Set Organization to Company
Define a Rule to Determine Cost Center Segment Value:
Name Employee Cost Center
Description Map an employee's organization to a cost center
Intermediate Value Source Parameter
Parameter Name Expenditure Organization
Segment Value Source Segment Value Lookup Set
Lookup Set Organization to Cost Center
Define a Rule to Determine Account Segment Value: (Indirect Private Labor)
Name Indirect Private Labor
Description Indirect private labor cost account
Intermediate Value Source Parameter
Parameter Name Task Service Type
Segment Value Source Segment Value Lookup Set
Lookup Set Indirect Labor Cost
Define a Rule to Determine Account Segment Value: (Indirect Public Labor)
Name Government Marketing Labor
Description Government marketing labor cost account
Intermediate Value Source Constant
Constant 5151
Segment Value Source Intermediate Value
Define a Rule to Determine Account Segment Value: (Private Billable Labor)
Name Private, Billable Labor
Description Private, Billable labor cost account
Intermediate Value Source Constant
Constant 5100
Segment Value Source Intermediate Value
Define a Rule to Determine Account Segment Value: (Private Non-Billable Labor)
Name Private, Non-Billable Labor
Description Private, Non-Billable labor cost account
Intermediate Value Source Constant
Constant 5102
Segment Value Source Intermediate Value
Define a Rule to Determine Account Segment Value: (Public Billable Labor)
Name Public, Billable Labor
Description Public, Billable labor cost account
Intermediate Value Source Constant
Constant 5101
Segment Value Source Intermediate Value
Define a Rule to Determine Account Segment Value: (Public Non-Billable Labor)
Name Public, Non-Billable Labor
Description Public, Non-Billable labor cost account
Intermediate Value Source Constant
Constant 5103
Segment Value Source Intermediate Value
Enable the Indirect Private Labor Transaction and Assign Rules:
Function Name: Labor Cost Account
Transaction Name: Indirect, Private Labor
Segment Rule Pairings
Number Segment Name Rule Name
0 Company Employee Company
1 Cost Center Employee Cost Center
2 Account Indirect Private Labor
Enable the Indirect Public Labor Transaction and Assign Rules:
Function Name: Labor Cost Account
Transaction Name: Indirect, Public Labor
Segment Rule Pairings
Number Segment Name Rule Name
0 Company Employee Company
1 Cost Center Employee Cost Center
2 Account Government Marketing Labor
Enable the Private Billable Labor Transaction and Assign Rules:
Function Name: Labor Cost Account
Transaction Name: Private, Billable Labor
Segment Rule Pairings
Number Segment Name Rule Name
0 Company Employee Company
1 Cost Center Employee Cost Center
2 Account Private, Billable Labor
Enable the Private Non-Billable Labor Transaction and Assign Rules:
Function Name: Labor Cost Account
Transaction Name: Private, Non-Billable Labor
Segment Rule Pairings
Number Segment Name Rule Name
0 Company Employee Company
1 Cost Center Employee Cost Center
2 Account Private, Non-Billable Labor
Enable the Public Billable Labor Transaction and Assign Rules:
Function Name: Labor Cost Account
Transaction Name: Public Billable Labor
Segment Rule Pairings
Number Segment Name Rule Name
0 Company Employee Company
1 Cost Center Employee Cost Center
2 Account Public, Billable Labor
Enable the Public Non-Billable Labor Transaction and Assign Rules:
Function Name: Labor Cost Account
Transaction Name: Public Non-Billable Labor
Segment Rule Pairings
Number Segment Name Rule Name
0 Company Employee Company
1 Cost Center Employee Cost Center
2 Account Public, Non-Billable Labor

Labor Cost Clearing Account Function

When you run the PRC: Interface Labor Costs to Gener Ledger process, Oracle Projects credits a payroll clearing liability account to balance the labor expense account it debits when you run the PRC: Distribute Labor Costs process. The process then transfers both the liability credits and the expense debits to the Oracle General Ledger interface tables so you can post them to the general ledger.

The Labor Cost Clearing Account function consists of the following transaction:

The Clearing Account transaction determines which account AutoAccounting credits for payroll liabilities.

Fremont Corporation uses one payroll clearing account for each division of the corporation. For example, the Structural group does not have its own payroll clearing account; payroll liabilities for the Electrical, Structural, Mechanical, and Environmental organizations are all credited to the Fremont Engineering division's payroll clearing account 02-200-2200. That is, labor costs are cleared to the cost center associated with the division to which an employee belongs.
Fremont uses one liability account to record payroll liability:
· Payroll Clearing (2200)
To implement the Labor Cost Clearing Account function, Fremont defines two rules:
· One rule to find the division cost center of an employee's owning organization
· One rule to determine the liability account
Fremont defines a lookup set to map organizations to the appropriate division cost center. Fremont uses the lookup set to define a rule to supply a value for the Cost Center segment of its Accounting Flexfield.
Fremont uses an existing rule to supply a value for the Company segment.
Define a Lookup Set:
Name Org to Division Cost Center
Description Map organization to the cost center of the division to which it is subordinate
Segment Value Lookups
Intermediate Value (Organization) Segment Value (Cost Center Code)
Fremont Corporation 100
Administration 100
Executive Office 100
Human Resources 100
Finance 100
Information Services 100
Fremont Engineering 200
Electrical 200
Structural 200
Mechanical 200
Environmental 200
Fremont Construction 300
West 300
Midwest 300
East 300
South 300
International 300
Fremont Services 400
Data Systems 400
Risk Analysis 400
Define a Rule to Determine Cost Center Segment Value:
Name Division Cost Center
Description Cost center of an organization's division
Intermediate Value Source Parameter
Parameter Name Expenditure Organization
Segment Value Source Segment Value Lookup Set
Lookup Set Org to Division Cost Center
Define a Rule to Determine Account Segment Value:
Name Payroll Clearing
Description Payroll clearing account
Intermediate Value Source Constant
Constant 2200
Segment Value Source Intermediate Value
Enable the Clearing Account Transaction and Assign Rules:
Function Name: Labor Cost Clearing Account
Transaction Name: Clearing Account
Segment Rule Pairings
Number Segment Name Rule Name
0 Company Employee Company
1 Cost Center Division Cost Center
2 Account Payroll Clearing

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