This document provides information on labor distribution and payroll journal entries for government contractors. It discusses the 3-step labor distribution process of converting hours to dollars, distributing dollars across the general ledger, and distributing dollars across jobs/projects. It also covers total time accounting, acceptable allocation methods, and how to perform a mock payroll in QuickBooks. Common payroll journal entries and mistakes are outlined. The document aims to help government contractors properly handle labor and payroll in compliance with regulations.

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Labor Distribution &
Payroll
Journal Entries

2. Copyright © 2014-2022 Left Brain Professionals Inc.
We Know Government
Contract Accounting

3. Who We Are
Left Brain Professionals is a boutique accounting firm that serves
government contractors. We specialize in accounting systems and
strategic services.

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Our Practice Areas
ACCOUNTING SYSTEMS
• Accounting System Design &
Implementation
• Monthly Support Packages
STRATEGIC SERVICES
• DCAA Audit Support
• CFO & Controller Services

5. Our Team
Robert E. Jones
Principal GovCon Accounting
Advisor
CPA, CPCM, NCMA Fellow
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GovCon Accounting
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Copyright © 2014-2022 Left Brain Professionals Inc.

6. Learning
Objectives
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• Describe the labor distribution
process.
• Explain key components of payroll
journal entries.
• Identify common mistakes with labor
distribution and payroll.

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Background
Check out our previous webinars:
Timekeeping and Labor Distribution

8. Time
for a
Poll

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Labor Distribution
This is the number one payroll expense
issue we find with new clients.
3 Step Process
1. Conversion of hours into dollars
2. Distribution of dollars across general
ledger
3. Distribution of dollars across
jobs/projects

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Labor Dist Report
You need a report as DCAA expects to see one during an audit

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Convert Hours Into $$
Hourly (non-exempt) employees are
easy
Overtime premium must be separated
from the base wages
Salary (exempt) employees are more
difficult

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Dist $$ Across GL
Need labor accounts in each cost pool
• Direct Labor
• Paid Absences (Fringe)
• Facility Labor
• Overhead Labor
• G&A Labor
• B&P Labor
• IRAD Labor
• Unallowable Labor

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Dist $$ Across Jobs
Job Status Report or P&L by Job

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Total Time Accounting
aka “Uncompensated Overtime”
DCAA's Information for Contractors
Critical factor in labor distribution as
you cannot charge the Government
more than you pay the employee
Not required unless the time is material
in nature. [DCAM 6-410]

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Total Time Accounting
3 Acceptable Methods [DCAM 6-410.4]
1. Adjusted (effective) hourly rate -
DCAA preferred method
2. Pro rata allocation (percentage)
3. Charging a standard adjusted hourly
rate with variances to overhead

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Adjusted Hourly Rate
Mathematically easy and programmed
into system or Excel template
Annual Salary $83,200 ($1,600/week)

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Pro Rata Allocation
Annual Salary $83,200 ($1,600/week)

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Standard Cost
Requires:
• Annual calculation of a standard cost
based on estimated hours.
• Monthly reconciliation of variances
Annual Salary $83,200 ($1,600/week)
• Estimated Annual Hours 2,496
(48/week)
• Standard Cost $33.33

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Standard Cost
Month 1 $6,400 ($1,600 x 4) Month 2 $6,400 ($1,600 x 4)

20. Time
for a
Poll

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Mock Payroll in QBD
Using QuickBooks to Distribute Labor
Costs (icatsystems.com)
QuickBooks Desktop can perform a
labor distribution calculation by running
a mock payroll
This process generates the labor costs
by job and salaries payable liability

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Mock Payroll in QBD
Turn on Manual Payroll

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Mock Payroll in QBD
Employees setup with Payroll Items and rates (no taxes or
deductions)

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Mock Payroll in QBD
All time imported

25. Time
for a
Poll

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Payroll Journal Entries
When using a third-party payroll (not
Intuit/QuickBooks), you need to record
the following items:
• Labor costs
• Employer taxes
• Processing fees

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Payroll Journal Entries
If you use the mock payroll process
described above, you already have #1
labor costs
In this case, your payroll journal entry
addresses #2 and #3

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Payroll Journal Entries
1
2
3

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Payroll Journal Entries

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Paid Absence Recon
One often overlooked GAAP compliance item is the proper
recording of PTO liability

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Common Mistakes
• Generic "Payroll Expense"
• Recording net pay
• Combining labor and taxes
• Posting expense reimbursement as
labor or "payroll expense"

32. Time
for a
Poll

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Download Template
Labor & Payroll Template for
Government Contracts - Left Brain Pros

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