What Do Your Workers Cost?

Smart contractors make sure they are accounting for all possible costs when estimating the cost and bid price for a project.  One area where the cost isn't always readily apparent is the cost of labor.  While estimating the number of hours it takes to perform work is where an experienced estimator earns his or her keep, it is equally important to make sure that the hourly cost of performing that work is truly accurate and all inclusive.  Everyone understands that the gross wage one pays a worker is included in the hourly cost, and most also understand that payroll taxes and workers compensation insurance should be included as labor burden added to the gross wage.  However, smart contractors look at ALL costs of employing a worker when estimating the cost of performing a project.  Costs that vary with employment activity (or the incremental cost of putting a worker in the field) that are too often overlooked as components of labor burden may include:

• Liability insurance
• Employer’s cost of health and other employee benefit insurances
• Employer’s portion of contributions to retirement plans
• Estimated cost of providing company owned vehicles
• Allowances paid to employees for use of their privately owned vehicle
• Estimated cost of providing company owned mobile devices
• Allowances paid to employees for use of their privately owned mobile devices
• Estimated cost of providing uniforms
• Estimated employer’s cost of training, licensing and certifications
• Estimated cost of providing paid time off, including vacations, holidays, sick leave and any other paid time off
• Estimated cost of providing items too numerous and individually too inexpensive to specifically job cost when purchased, but which can become significant over time, such as small tools and supplies for production
• Estimated supervisory costs that are not being directly job costed

The above list may not be complete, and may vary from contractor to contractor.

Some estimators will go to great lengths to develop a comprehensive cost of employing production staff and use it quite effectively in their estimating and job cost budgets, only to find that the accounting department, in job costing their payroll costs, does not recognize and account for the same components of labor burden.  This creates a built-in price variance when analyzing budgets versus actual costs. 

For example, let’s assume that the estimator correctly predicted that work will take 100 hours to complete, and estimated that the true cost of the employees doing the work (including all possible labor burdens) was $45 per hour.  The accounting department’s payroll calculations only include and job cost the gross wages, payroll taxes and workers compensation insurance, which adds up to $28 per hour.  The job cost budget shows 100 hours with a total cost of $4,500, while the actual cost to date shows 100 hours with a total cost of $2,800.  It is misleading to say that actual costs beat the budget by $1,700 when the estimated hours were spot-on!  That $1,700 difference is a price variance.  Consider the same project, except that actual results were 160 hours, job costed at $28 per hour.  The budget versus actual report shows actual labor costs of $4,480 versus the budget of $4,500. It looks like the work was performed on budget, but it actually took 60% more time to do the work than estimated!

Clearly, it is important to prepare budgets and job cost reports consistently and comparably.  Budget versus actual reporting should avoid built-in variances and show how production is really doing in light of the estimator’s plan.

Fortunately, the payroll system of Sage 100 Contractor was designed for the specific and unique needs of contractors.  Payroll calculations can be designed to include all such labor burdens as mentioned above in the cost of employing workers.  Additional labor burden costs can be calculated as a percentage of gross pay, or per hour worked.  These payroll calculations effectively pull costs out of overhead expense accounts and make them part of job costs and direct expenses with very little effort once they are setup.

If you want to look more closely at how you are burdening your labor costs, or how to add payroll calculations that you know you should be including, give us a call.

Current Version Information!

The latest version of Sage 100 Contractor is version 19.5.34, the release of which was announced on January 23, 2015. 

In addition, on February 27, 2015, Sage released a Tax Table only update to accommodate lately released tax table changes for the District of Columbia.  This is not considered a version change, so your Sage Advisor Update does not appear to consider this a change worth notifying users about.  If you have employees in the District of Columbia and have a current support plan, you should look for this Software Notice 15-B or give us a call.

Solution to an Inventory Dilemma

Recent tips have been geared toward general topics about Sage 100 Contractor.  This one is just for the accountants and bookkeepers out there.

Users of the Inventory module know that the system will not let the quantity on hand for any inventory item go below zero.  Recently, a client called with the following scenario:

• They found that a payable invoice for two inventory items had been entered erroneously on Monday through the use of menu 12-4 Purchase Order Receipts. 
• Tuesday, an inventory allocation had been entered and shipped to move one of these inventory items to a job. 
• Wednesday, it was discovered that the second inventory item entered on Monday had not been received and was instead backordered.  When the error in the entry of the invoice on Monday was discovered, the client tried to void and re-enter the invoice correctly.  However, the system would not permit the client to void Monday’s erroneous entry because there was not sufficient inventory quantity on hand of the one item to absorb the quantity that would be subtracted from inventory with the voiding of that invoice – it would have caused the quantity on hand for that item to go below zero.
• When they called for help on Thursday, I suggested the following steps to correct the erroneously entered invoice:
• Copy the erroneous AP Invoice record that was entered on Monday in menu 4-2.
• Paste the copied invoice to a new record in 4-2 and modify the entry to the way it should have been entered with the item that was received and not the item that was backordered.
• Save this new 4-2 AP Invoice record.
• This will increase the quantity on hand for the first inventory items involved in the correction and the Tuesday inventory allocation.
• Then go find the erroneously entered AP Invoice and void it.  This takes the backordered item out of inventory and adjusts the quantity on hand of the item actually received on Monday and partially shipped out on Tuesday to the correct amount.
• The order in which these entries are recorded is a little counter intuitive, but when you follow it through, checking the recorded inventory quantities on hand at each step, you can see how it works.

For more help with inventory issues, don’t hesitate to call your friendly Certified Consultant!

Current Version Information!

The latest version of Sage 100 Contractor is version 19.5.34, the release of which was announced on January 23, 2015. 

In addition, on February 27, 2015, Sage released a Tax Table only update to accommodate lately released tax table changes for the District of Columbia.  This is not considered a version change, so your Sage Advisor Update does not appear to consider this a change worth notifying users about.  If you have employees in the District of Columbia and have a current support plan, you should look for this Software Notice 15-B or give us a call.

Backups? I don’t need no stinking backups!

Now that I’ve got your attention, let’s talk about backups – effective backups. 

To most people, the title above sounds totally ridiculous.  Everyone knows you do need to back up your accounting data.  So many things can happen to your accounting data that may require a restoration of data from a recent backup – inadvertent deletion of data, interrupted posting processes that result in corrupted data, an ill-advised change in an accounting process or principle that is easier to “roll back” to an earlier state than to make correcting entries, or the dreaded virus or malware infection.

I’ve recently had several clients suffer from the CryptoLocker malware infection or a variation of it.  Someone in the office opens an email attachment that they shouldn’t, and before they know it, a malware program seeks out and encrypts database files on their network, rendering them totally useless.  The encryption is a strong encryption that is difficult for anyone to crack without a decryption key.  The extortionists that sent out the malware in the first place make a limited time offer to sell the decryption key, accepting bitcoin or some untraceable payment form for the ransom.

Paying the ransom is just wrong! It encourages other “evil-doers” and sets a bad example for your staff.  The correct solution to the problem is to clean the infected machines of the virus, and restore your data from backup data.  This is a moment of truth for your backup processes.  I have had at least two clients discover that there were no effective backups being done, even though they were told by their IT professionals that backups were being performed!  And several clients were down for more time than they should, waiting for their complicated backup restoration process to be performed.

Whether you get hit with the CryptoLocker malware infection or just need to restore from backup for some other less nefarious reason, don’t take the chance that your backup processes are faulty.  Insist that your IT professional demonstrate to you that backups are being performed consistently, completely and securely, and that the data can be restored from backup in a reasonable timeframe.  Make sure that the backups are insulated from your network so that a malware virus can’t infect the backup at the same time it’s infecting your live data.  Also, insist on a process to periodically copy off a permanent, archival copy of your data each month and keep then in safe storage for a year or more.

If you want further help with your backup processes, give us a call!

Current Version Information!

The latest and greatest version of Sage 100 Contractor is version 19.5.34, the release of which was announced on January 23, 2015.  This version was released to update state income tax withholding tables for states that were tardy in publishing their withholding tables.  It also contains some fixes for problems discovered in version 19.5.27. The 19.5.27 version was announced in the middle of December 2014 with the caveat that it should not be installed before the payroll of 2014 (based on check date) is processed and posted to the general ledger and the 2014 Payroll Year is closed. This version includes the latest Federal and State withholding tax tables for 2015 available at that time and enhancements for helping employers collect and report employee benefit information to comply with the Affordable Care Act.

Tips for Outside Accountants and Auditors of Sage 100 Contractor Clients

I get calls from clients asking for assistance with entering Adjusting Entries provided by their outside accountants and auditors, only to find out that the entries are written without consideration of the functionality of Sage 100 Contractor. I sometimes find that outside accountants don’t understand how the program works and what effect certain built-in controls have on the accounting processes of the company. In an effort to help clients with communicate their accountants, I suggest the following tips be provided to your accountants:

• Understand what General Ledger (“GL”) accounts serve as control accounts and have specific requirements. Control accounts are specified in menu 1-8 General Ledger Setup. Most control accounts have specific requirements:
• Accounts Receivable entries require that a job be specified and, where appropriate, specific invoice numbers.
• Service Receivable entries require that a client be specified and, where appropriate, specific invoice numbers.
• Accounts Payable entries require that a vendor be specified and, where appropriate, specific invoice numbers.
• Journal transactions cannot be posted directly as such to receivable and payable control accounts but such entries can be made by entering debit and credit memos to these accounts.
• Sage 100 Contractor vigorously enforces job costing in specific ranges of accounts. Any entry to GL accounts in the WIP Assets or Direct Expenses ranges of accounts must have a job, cost code and cost type! If you are going to propose an adjusting entry to accounts in these ranges, expect to provide a job number, cost code and cost type. Don’t suggest that the client create a junk job number just for adjusting entries. It just trashes up important reports like the bonding report. If you have an entry that can’t be attributed to a specific job, post it to a GL account in the Overhead or Administrative ranges of accounts.
• Sage 100 Contractor vigorously enforces equipment costing in specific ranges of accounts. Any entry to GL accounts in the Equipment/Shop Expense range of accounts must have a specific equipment number, cost code and cost type! If you are going to propose an adjusting entry to accounts in this range, expect to provide an equipment number, cost code and cost type. Don’t suggest that the client create a junk equipment number just for adjusting entries. It just trashes up the equipment database and encourages clients to subvert the enforced equipment costing. If you have an entry that can’t be attributed to a specific equipment number, post it to a GL account in the Overhead or Administrative ranges of accounts.
• Control accounts for the Equipment Management system are specified in menu 1-8 General Ledger Setup. Single GL accounts for Equipment Cost, Equipment Accumulated Depreciation, and Equipment Loans are defined there, and any postings to these GL accounts require subaccounts that correspond to Equipment defined in menu 8-3 Equipment. If you propose an adjusting entry to one of these control accounts, be prepared to identify what equipment number should specified.
• Be aware of defined departments and subaccounts when proposing adjusting entries. If a GL Account is set up for Subaccounts or Departments, please provide that information for your entries. Subaccounts and Departments are important control and information points, and are required for any entry to GL Accounts that are defined for such.
• When adjusting journal entries are provided to the client, help them by identifying which entries are merely reclassifying entries (for presentation purposes only) and do not need to be posted to the client’s books, and which entries are accruals that should be reversed in the next fiscal year.
• When adjusting journal entries are provided to the client, it helps to also provide a copy of your working trial balance as well. This can help resolve questions about the entries, and provides a means of confirming that the client’s books are in agreement with published financial statements and tax returns.

This list is not exhaustive, but it can go a long way to improving the service you receive from your outside accountants and auditors.

If your outside accountants and auditors have questions that you cannot answer satisfactorily, consider having them contact Mathieson Consulting, your friendly Sage Certified Consultant!