I am currently using Manager.io - Cloud Version - for a Corporation located in a country that requires two Corporate-funded payroll accounts… Vacation - typically, after one year, the employee is entitled to 30 days’ Vacation
13th Month - one month’s pay, paid out in 1/3 increments (every 4 months) in addition to normal payroll. Subject to normal payroll taxes and withholding as well
My question is part accounting, and part operability of Manager…
Even though I can record each of them as a “contribution” as a payslip item, and the amounts for each will show up under my Payroll Liability Accounts. And both are immediately expensed.
The problem for me is that when I pay the employee(s) Vacation Time (like next year) I cannot choose “Vacation” as an expense Account, because the Vacation was expensed off (this year). To what account do I charge it? IMO, the Liability account is the proper place to charge it…
Or in the case of the 13th Month bonus, By using the “Contribution” section of the Payslip, it breeds the same issue. The “Contribution” hits both Liability (correctly), but it is immediately expensed as well. Again, the Liability Account is the correct place to charge the playslip earnings item.
I found this on a website about accruing Vacation pay…
Employee uses vacation time
After an employee uses or cashes out vacation time, you will create a journal entry by debiting your Vacation Payable account and crediting the Cash Account.
Cash is an asset account, which increases by a debit and decreases by a credit. You will decrease your Cash account since an employee is using or cashing out their vacation time.
Date
Account
Notes
Debit
Credit
XX/XX/XXXX
Vacation Payable
Vacation used
X
Cash
X
So when I translate that to the way Payslips are built in Manager, yes, I will be crediting Cash for the Vacation pay (or 13th month Bonus), and debiting…what?
It is certainly NOT regular salary, nor is it Vacation Pay (since it has been accrued), nor the 13th Month Bonus (again, already accrued).
How can I correctly pay these two Corporate funded employee benefits from the payslip interface? Other than using a clumsy JV every time they come up.
First, there are no contributions involved. Contributions are amounts payable to outside entities, such as when you match a charitable contribution made by the employee. The amount posted to the designated liability account is ultimately paid to the charity.
This is only true if you are legally obligated to pay the employee (if the employee quits, for example) or if company policy states you will do so. If that is true, the accrued vacation pay earned during the first year should be posted to a liability account set up for the purpose. That liability account balance will carry over to the next year and can be debited when the employee takes vacation. The fact that you expensed the accrual during the first year is irrelevant when you pay the employee.
If you are not obligated to pay any accrued vacation, then vacation pay is a current expense and should be set up as an earnings item posted to an expense account and Employee clearing account.
Based on what you have written so far, the 13th month bonus is not tied to anything else. It is just an earnings item. What happens if the employee leaves in month 14? Do you owe the remaining 2/3 of the bonus? If so, you will have to set up another liability account to track these bonuses. If not, the bonus is no different from hourly pay except that it is earned on a different basis.
Partially correct. Correct in that it is not paid to an outside entity. But it IS a Liability that must be accrued as they earn it, whether Vacation or 13th Month.
Yes, the Employee is legally entitled to both accrued Vacation AND ther accrued 13th Month Bonus…and the Company is Legally Obligated to pay.
Bolded part true…and Vacation WILL carry over into the following year.
They are legally entitled to get paid…1/3 of a month’s salary…Every 4th Month.
If they are employed 14 Months, they are entitled to 1 Month’s Salary (1/3 in Dec, 1/3 in April, 1/3 in August), plus they get 2 months (1/2 * 1/3) for the last 2 months.
Here is the point…They ARE entitled to accrued Vacation, and the 13th Month Bonus, while possibly misnamed, is very similar to vacation time…every 4 months, you get 1/3 of a month’s salary.
Again, you are correct, and I have no… er … problem writing a JV to create the liability and expense transactions for both Vacation and 13th Month Bonus but I am looking for a more elegant way of handling other than PAYING the employees on a separate check cut from the Payment register…
If I could create a “Pay Earnings Item” to credit Cash and DEBIT the LIABILITY Account, in the Payslip interface, that is elegant.
As opposed to a JV for both Monthly transactions mostly in, and out. But I STILL have no labor expense account option open to charge the labor…already been charged…
With all due respect, I DID create a test scenario, and DID try it different ways. AND I WAS NOT ABLE TO FIND AN ACCEPTABLE SOLUTION.
Vacation and 13th Month (the one month salary bonus each 4 months) are separate payroll charges coming out of the Company’s hide…
Perhaps this will help you understand…
There is such a thing as DIRECT LABOR COST…that is charged to a particular cost center(s) that represents COST OF GOODS SOLD.
There are also labor costs known as INDIRECT LABOR, which is charged to expense accounts NOT INCLUDED in COGS. Management and Administrative costs are NOT COGS…they are necessary organizational costs to support production, but are not an element of COGS.
Another element of INDIRECT LABOR is Vacations, Bonuses and Statutory salary elements such as…13th Month Bonus.
I have over 35 years experience working in one very large industry known as CONSTRUCTION. And this particular aspect, this Direct / Indirect Labor Cost Control has been in effect in that Industry for more than the 35 years I worked in it. And, to be certain, Indirect Costs, such as vacation, or BONUSES are NEVER CHARGED TO DIRECT LABOR. AND, it is something that can be recorded on an Employee’s payslip, in addition to any other payslip items, whether they be DIRECT OR INDIRECT LABOR
So, my whole point in asking on this board for help on a solution was to figure out a way to use the payslip interface to pay indirect labor costs to a direct, or indirect, employee, that originates from an accrued liability account (Vacation or 13th Month Bonus).
And moreso, the idea of accruing that labor cost, (keep in mind, both vacation and bonuses incur withholding taxes as well) and expensing it at the same time seems anomalous to me…I understand it, but then WHERE WOULD I CHARGE THE PAYSLIP ITEM SINCE IT IS ALREADY INCURRED???
That was my question…and to be certain, I did test it three different ways, using Liability / Expense, Control / Special Accounts and Journal Entries. Unless I can charge a payslip item to a Liability Account, none of the first three work smoothly; It is like driving a Model T down a dusty, pot-holed country road.
Please reconsider your rather curt and dismissive response and help me find a solution.
Direct labor costs are not cost of goods sold. Cost of goods sold (represented in Manager by the default Inventory - cost account) is the value transferred from Inventory on hand when an inventory item is sold. If you produced the inventory item on a production order, they may have been non-inventory costs added to the average cost of the finished inventory item. But that is not the same as the type of direct labor costs you describe.
As I wrote before, payslips are not used in Manager to pay anything to an employee. You need a payment transaction for that.
I don’t know what you are referring to with this statement, because payslip items do post to liability accounts. If you think they do not, you have not followed the instructions for using them correctly.
I already gave you the solution. And the Guides provide illustrations. My brief response was meant to encourage you to follow the instructions provided, rather than continue experimentation with your incorrect procedures. Putting the correct procedures into practice in a test business will provide a better opportunity to learn than demanding that someone else do it for you.
Maybe I misread but it is not uncommon for businesses to add some labour costs to the cost of sales in addition to inventory items, for example, restaurants do often the same as builders/contractors.
We use payslips for Employees that @HomeFlip would consider indirect labour costs and used the Manager Guide to make it work including earning items (different salary types such as Management, General Staff, etc) and deductions such as PAYE and contributions such as Pension contribution employer in payslip items under settings. This works as described by @Tuth and will populate the expense accounts when generating payslips, where each payslip is tailored to each employee. Once paid the liability account zeroes out and the expense remains unchanged as it was expended when Payslip was created.
We use Invoices for Contractors that @HomeFlip would consider direct costs and enable Withholding tax percentage in the Invoice. In @HomeFlip case, this would be expended to a “Contract Labor Costs” expense account grouped under Cost of Sales. As with Payslip it is expended to the Contract Labor Costs account when the Invoice is created and the Withholding tax amount is put under liabilities. Only when you pay the Invoice and/or the Withholding tax these will be cleared with nothing changed on the expenses side as it was already expended properly in P&L at the moment of creation.
Caution
Payslips do not record payment to the employee. They only record expenses and liabilities associated with payroll. Further transactions are needed to discharge the liabilities by paying the employee and forwarding deductions and contributions to relevant entities.
If you want to do this in Manager, you should create an expense group, Cost of goods sold. That group would include the Inventory - cost account and another self-created expense account for the direct labor. Payslip earnings items for direct labor should post to this expense account. The Inventory - cost account functions automatically, so you cannot add direct labor costs to it.
I believe what @HomeFlip was trying to accomplish is what you described in your next paragraph, @eko.
This whole paragraph is a contradiction to itself…as I indicated, I have worked for companies over a 35 year time span who have done exactly opposite of what Tut describes. And what’s to say those Non-Inventory Items aren’t or can’t be LABOR items? And what if those “Non-Inventory Items” for Labor are much greater (like 150-300%) than the “Direct Materials from Inventory" as Tut suggests? And any INDIRECT LABOR COSTS will be covered by the GROSS MARGIN%. This is exactly captured when one sets up Inventory Items…”Price when Purchased, Price when Sold” And which “value” is transferred, the price I paid, or that price I need to Customer to pay to cover my costs, plus margins???
And, to demonstrate what structure I have set up in Manager…:
Note that it is for two months…thus showing it that structure has been in effect for at least two months, and not two days…
I trust this will resolve how I have set up the CoA.
Bolded is appreciated.
Correct in basis, but my experience is fully 120% of ALL labor costs on a Construction project are DIRECT LABOR and considered part of COGS. But, Vacation time or ANY BONUSES THAT MAY BE PAID to each employee, Direct or not, are considered INDIRECT COSTS of LABOR. And Direct and Indirect Labor are expensed to different expense accounts. So yes, I am already set up to segregate Direct from Indirect Labor in the CoA.
To be certain, “Vacaciones and XIII Mes” are obligated by Labor Laws for all Salaried workers, whether Hourly or Salaried on a Semi- or Monthly- Basis.
From an audit standpoint, we need to demonstrate to ANY CPA, or Gov’t Official, that we ARE ACCRUING for these statutory sums. My issue is and has been since I first asked this question on the Forum…I am OBLIGATED to capture accruals for Vacaciones and XIII Mes, both of which can also be PAY ITEMS, on a monthly basis, but they are NOT expensed until recorded as a payslip item. (Vacaciones: accrued each pay period expensed when paid out, XIII Mes accrued each pay period, expensed when paid out each April, August and December – in 1/3 increments). To be certain, both Vacaciones and XIII Mes are PAY ITEMS and also are used as a basis for deducting Seguro Social and SS Educativo deductiones, as well as INCOME TAX, which are correctly handled in the payslip.
And, there are three types of Labor being Captured…Salario (w/Deductions & Benefits such as Vacaciones & XIII Mes), Servicios Professional, Contract Employees who use OUR materials & Equipment, but have no deductions or benefits, and Contratos – Those Contractors who furnish labor and Materials to our specifications, and possibly Equipment (they may USE ours, because Tractors may be beyond their financial means).
These classifications are also applicable to Indirect Labor as well, but the CoA Description leads with “IND” (Check the images to the CoA).
Also, unlike what Tut continues to suggest, I do understand that Labor Payslip Earning Items, Deductions & Withholding (not expensed, but recorded as a Current Liability to be paid) and Employer Contributions (not shown on payslip, but JV’d into the appropriate Liability (Cr) and Expense (Dr) accounts when accrued…
I assume this last sentence refers to “Employee Clearing Account”, as it has that exact function you describe. Those designated as “Contratos” submit invoices and are paid through Invoice / New Payment processes, and not the Clearing Account.
Correct, but I have THREE Direct Labor Accounts to show those costs individually. Plus a like set of accounts for Indirect Labor…including Employer Contributions (Patronal) and other labor cost obligations.
So, my question still stands…As expensing Vacaciones and XIII Mes in the same period which I accrue those costs totally exaggerates Indirect Labor Costs, how can I accrue these two employee costs without whacking expenses for something that won’t happen for awhile, at most 1 yr for vacaciones, no more than 4 months, for XIII Mes?
I can kinda/sorta agree that XIII Mes can be Accrued/expensed at the same time, but when I create a payslip (and I have created those as Pay Items), I cannot record them AGAIN as an EXPENSE, since they’ve already been recorded (JV Cr-Liab, Dr – Exp), effectively DOUBLING up on that expense. As I indicated in a previous post, I have experimented with using Control and special Accounts; paying the payslip, then adding the Vacaciones or XIII Mes transactions to the “payment” of the payslip pulled up from the “Employee Clearing Account”, plus then adding the deductions and taxes to the payment as well, but as you would expect they do not show up on the Payslip itself…besides, it looks UGLY. Or, if I record those deductions in the payslip interface it also looks extraordinary weird…every 4 months, deductions are 133% of the payslip pay items, as well as withheld Income taxes, and even more if vacation is paid along with Regular Salary.
It currently cannot be handled as a Payslip Item, because when you set those items up, you can only choose among expense accounts.
And if I choose to close my eyes and JV the Liability and Expense, knowing that it overstates labor costs each month, to what account can I possibly record the payslip item – because it has already been expensed. Well, If I had a Pay Item that hit a Liability Account (normal “Debit Liability, Credit Cash”), that would work…except for the much higher monthly labor cost (“Credit Liability, Debit Expense” each pay period) that requires it.
I hope this explains my situation:
I am obligated BY LAW to accrue these two “Benefits” which are provisioned for compliance with the Law,
Pay the Employee when those Benefits become due, and
Without undue exaggeration of Labor Expense each Month, and
Without creating a “Reserve Bank Account” from which to “credit” the Liability account.
Thanks for your reasoned responses. I hope you can help further!
However, please note that there is a difference in accrual of an expense and actual paying of an expense. As such the practices we described here are very common as for the company what is in expense accounts in P&L may still be a liability as well. The advantage is that you have a true picture of expenses in P&L and thus can calculate business results.
However, I understand that you would like to first have the liability recorded and only expended when paid. You could consider using special accounts similar to funds payable to your contractors (or kind of virtual loans from contractors). You can start looking at the guide Use special accounts | Manager and also search the forum how best to set this up for what you owe.
Thanks! I will try Special / Control Accounts again…I am using them extensively in a Land Development organization as well - investor contributions, payouts, sources of funds, etc.
If/When I have questions, I will direct them to you, if you don’t mind…Thanks again!
One thing I forgot to mention…in some massive organizations, Accounting / HR use a separate payroll system, in which such things as Vacations, or pay items such as “XIII Mes” as it were, may be stored.
Not exactly sure of how that interface / integration works, or how liabilities / expenses may be created through that interface
First, I did not mention “Non-Inventory Items.” I wrote about “non-inventory costs” on production orders. I was careful to use terminology from the program.
Second, such non-inventory costs on production orders can certainly be labor expenses, as fully explained and illustrated in the relevant Guide. The point I was making is that you were writing about adding labor costs directly to what you called “cost of goods sold,” which is itself not terminology used by the program. I explained that to do this, you would have to create a chart of accounts group named Cost of goods sold and categorize labor expenses within this group rather than add them to the Inventory - cost account, which functions only automatically based on the average cost in Inventory on hand. You should restrict yourself to responding to other forum members actually write, not attribute things to them they have not said.
