A QuickBooks payroll tip for calculating Workers Compensation when it is based on hours worked.
Workers Compensation Insurance is usually calculated as a rate which is applied to gross wages; and that’s how the built-in QuickBooks Worker’s Compensation feature calculates it. Last week, on the Intuit Community Forum, someone asked how you would set QuickBooks up to track Workers Compensation when it was a rate based on hours worked.
I gave a brief overview on the forum, but thought that it deserved a more detailed “how to” here on our blog.
Before you begin, you’ll need at least three accounts in your Chart of Accounts to track your Liability and Expenses:
- one to track the accruing Worker’s Compensation Liability {an Other Current Liability Account}
- one to track job or field related Worker’s Comp Expenses {a Cost of Good Sold or Direct Labor Costs}
- one to track administrative or overhead Worker’s Comp Expenses {an Expense account}
Next you’ll want to get your Worker’s Compensation rate sheet and using the rate sheet we’ll being adding QuickBooks Company Contribution Payroll items for each different classification code/experience rate.
- From the Lists menu -> choose Payroll Item List
- click the Payroll Item button at the bottom left
- choose New
- select the Custom Setup option
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- click the Next button
- select the Company Contribution option
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- click the Next button
- type in the classification code/experience rate name
- check the option to Track expenses by job {this selection is crucial for job costing}
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- click the Next button
- select your Worker’s Compensation Carrier
- select the Other Current Liability Account for tracking your accrued liability
- select your Cost of Goods Sold or Expense account
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- click the Next button
- in the Tax tracking type window, select None, click the Next button
- on the Taxes window, none of the tax items should be checked, click the Next button
- on the Calculate based on Quantity window you can choose two different methods of calculation:
- Calculate this item based on quantity – use this option if your employees perform work under more than one classification/experience rate during the week. You will have full control of the number of hours that count toward each experience rate.
- Calculate this item based on hours – use this option if each of your employees perform work under only a single classification or experience rate during the week. QuickBooks will automatically calculate the rate based on the total number of Straight and Overtime hours worked.
Using the Calculate this item based on quantity option:
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- click the Next button
- on the Default rate and limit window – in the first box, enter the experience rate for this classification, leave the 2nd field empty, and make sure that you UNCHECK the “This is an annual limit” option
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- click the Finish button.
Add this company contribution payroll item to each applicable employee’s record.
When using this method, when you are creating the employee’s paycheck you will manually enter the number of hours that the employee worked under each experience rate in the Quantity column, once you enter the Quantity {number of hours} for each experience rate QuickBooks will perform the calculation and display the applicable amount in the Company Contribution section of the paycheck.
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Using the Calculate this item based on hours option:
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- click the Next button
- on the Default rate and limit window – in the first box, enter the experience rate for this classification, leave the 2nd field empty, and make sure that you UNCHECK the “This is an annual limit” option
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- click the Finish button.
Add this company contribution payroll item to each applicable employee’s record.
When using this method, when you are creating the employee’s paycheck QuickBooks will automatically make the calculations for you by displaying the total number of hours the employee worked against the experience rate in the Quantity column and display the applicable amount in the Company Contribution section of the paycheck.
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When you pay your Worker’s comp do so through the Pay Liabilities option.
We hope that you’ve found this article to be helpful, including Worker’s Compensation costs – regardless of how they are based – is an important part of your job costing.
Taking a credit against the full prevailing wage fringe benefit for company paid 401k contributions and reporting it correctly on the Federal WH-347 Certified Payroll Report can be very confusing. This question was asked by a reader who recently requested our 4 Ways Contractors Pay Prevailing Wage Fringe Benefits eBook.
We are a non-union shop working on prevailing wage jobs; our Company offers a 401k plan and the company contributes 4% of our employee’s gross wages to the 401k. We understand that the 401k plan is considered a bona-fide plan, but how do we take an hourly credit when our contributions are based on a percentage of gross? Currently we just look at an employee’s gross wages for the month and make the calculations and contributions.
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Taking a credit against the full prevailing wage fringe benefit IS confusing, it’s NOT just you.
The fact that you are a non-union shop, and your employees are probably also work on non-prevailing wage jobs adds another layer of complexity to this. And if you also take credit for other company paid contributions, such as health insurance – well, that to will add complexity. If the credits that you take do not equal the FULL prevailing wage fringe – well that too adds an additional layer of complexity.
From what “I” know (and realize that I’m in Vermont and know enough about prevailing wage rules & regulations to be dangerous – I may not know all the fine print for your specific state). I will explain what I know and you should then verify it with the Prevailing Wage Unit of your local Department of Labor just to make sure. I also want to point out that this methods is not 100% accurate and extra work will need to be done if the combine credits that you can take do NOT equal the full fringe benefit rate.
Step 1 – Convert the percentage into an hourly rate
First you are going to need to convert the percentage into an hourly rate.
This is done by taking the prevailing wage hourly base rate and multiplying it by 4%. So if the base rate is $35.00 per hour multiply this by 4%, which equals $1.40.
Step 2 – Set up a company contribution item in your accounting software to track the hourly rate
While you probably already have a company contribution item in your accounting software, you’ll want to add another one specifically for the prevailing wage credit, this will make it easily identifiable in the event of an audit.
If you use QuickBooks to do your payroll, go to the Lists menu -> Payroll Item List -> click the Payroll Item button (bottom left of this window) -> choose New -> Custom Setup -> choose Company Contribution -> enter the name that you want to use in checks and reports (PW 401k) -> make sure the track expenses by job option is checked -> currently the Tax tracking type should be set to None -> on the Taxes tab, nothing should be checked -> select the Calculate based on quantity option -> and on the last window set default rate to 1.40 with no annual limit AND be sure that the This is an annual limit option is NOT checked. Click Finish.
Add this new company contribution item to the Payroll & Compensation Info tab of all employees in the Additions, Deductions and Company Contributions section.
Step 3 – When creating paychecks
This is where it gets really complex, especially if the credits you take against prevailing wage do not equal the full fringe rate and you pay a portion of the fringe in cash – which will then increase the hourly rate of pay.
EXAMPLE: John J. Equipment, your employee works 25 hours at $35.00/hr on a prevailing wage job and 15 hours at $28.00/hr on a non-prevailing wage job during the week.
Against the company contribution item for the prevailing wage 401k you will enter a quantity of 25 (for 25 hours worked on a prevailing wage job). This entry is pretty straightforward.
To determine the “normal” 4% of gross 401k contribution, you’ll need to take the total gross from all hours worked multiply it by 4% then SUBTRACT out the prevailing wage contribution, and enter that dollar amount.
- 25 prevailing wage hours x $35.00/hr = $875.00
- 15 non-prevailing wage hours x $28.00/hr = $420.00
- equals $1,295.00
- times 4% = $51.80
- MINUS 25 prevailing wage hours x $1.40/hr credit = $25.00
- $51.80 MINUS $25.00 = $26.80 remaining 401k contribution
You’ll enter the $26.80 in the RATE column for the “normal” 401k contribution.
Important Note: If the items that you are allowed to take credit for do not equal the full prevailing wage fringe; consider adding a bona-fide plan to handle the balance of the fringe benefit contribution. A very good plan to consider is the one offered by Prevailing Wage Contractors Association (PWCA), the employees have access to the fringe contributions if you have to lay them off for a short amount of time. For additional information please contact us or contact PWCA directly, indicating that you found them through Nancy Smyth from Sunburst Software Solutions, Inc.
California prevailing wage laws and certified payroll reporting requirements are quite complex and can be mandated by any of the following agencies or organizations, each with their own unique set of reporting requirements.
- The California Department of Industrial Relations (DIR) and the filing of Form A-1-131.
- The California Department of Transportation (CALTRANS) and the filing of a modified WH-347 form.
- The U.S. Department of Labor and the filing of a standard WH-347 Form.
- Electronic filing requirements on specific construction projects through the use of LCPtracker, TRS Consultants, and/or Elation Systems, Inc. D-BAS Labor Compliance Software.
- Additional “paper filing requirements” by Labor Compliance Organizations, such as, Golden State Labor Compliance, LLC or CalLCP.
- Electronic filing requirements being introduced on August 1, 2010 through the California Department of Industrial Relations Compliance Monitoring Unit (CMU), which will utilize the TRS Consultants Inc., on-line Labor Compliance Program
Because of these complexities, contractors frequently ask these questions about California Prevailing Wage Laws.
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Q. What is the methodology for determining the prevailing wage rate?
A. The prevailing wage rate is the basic hourly rate paid on public works projects to a majority of workers engaged in a particular craft, classification or type of work within the locality and in the nearest labor market area (if a majority of such workers are paid at a single rate). If there is no single rate paid to a majority, then the single or modal rate being paid to the greater number of workers is prevailing.
Q. How does the prevailing wage affect me?
A. California’s prevailing wage laws ensure that the ability to get a public works contract is not based on paying lower wage rates than a competitor. All bidders are required to use the same wage rates when bidding on a public works project. California law requires that not less than the general prevailing rate of per diem wages be paid to all workers employed on a public works project.
Q. What is a general prevailing wage determination?
A. When the director of the California Department of Industrial Relations determines that the general prevailing rate of per diem wages for a particular craft, classification, or type of worker is uniform throughout an area, the director issues a determination enumerated county by county, but co vering the entire area. General determinations are issued twice a year on February 22 and August 22.
Q. What is a special prevailing wage determination?
A. When a particular craft, classification or type of worker is not covered by a general determination, the awarding body may request a special prevailing wage determination. Requests must be made at least 45 days prior to the bid advertisement date.
Q. What is an issue date?
A. The date upon which copies of the determination of the director are deposited in the mail. Determinations are issued twice a year – Feb. 22 and Aug. 22.
Q. Why is there an expiration date for each prevailing wage determination?
A. The expiration date indicates when the determination of the director of the California Department of Industrial Relations is subject to change.
Q. What does it mean when there is a single asterisk (*) after the expiration date of a prevailing wage determination?
A. Prevailing wage determinations with a single asterisk after the expiration date, which are in effect on the date of advertisement for bids, remain in effect for the life of the project. Interested parties should contact the Division of Labor Statistics and Research at (415) 703-4774 for the new rates after 10 days from the expiration date (if no subsequent determination is required) or visit our website.
Q. What does it mean when there are double asterisks (**) after the expiration date of a prevailing wage determination?
A. Prevailing wage determinations with double asterisks after the expiration date indicate that the basic hourly wage rate, overtime, holiday pay rates and employers’ payments for work performed after this date have been predetermined. If work is to extend past this date, the new rates must be paid and should be incorporated in contracts entered into now.
Q. What is a predetermined change?
A. Definite changes to the basic hourly wage rate, overtime, holiday pay rates and employer payments which are known and specified in the applicable collective bargaining agreement at the time of the bid advertisement date and which are referenced in the general prevailing rate of per diem wages.
Q. What is the effective date of a prevailing wage determination?
A. The date upon which the determinations of the director of the California Department of Industrial Relations go into effect. This date is 10 days after the issue date of the determination.
Q. What is a residential project?
A. Projects consisting of single-family homes and apartments up to and including four stories are subject to payment of prevailing wages when paid for in whole or in part out of public funds, including federally funded or assisted residential projects controlled or carried out by an awarding body.
Q. What is a commercial project?
A. All non-residential construction projects including new work, additions, alterations, reconstruction and repairs. This includes residential projects over four stories.
Q. What is a coverage determination?
A. A process in which the awarding body or any other interested party (such as a contractor, employee, union or labor-management compliance organization) may request a written determination by the director of the Department of Industrial Relations about a specific construction project or type of work to be performed.
Q. When does overtime apply?
A. Compensation for all hours worked in excess of eight hours per day and 40 hours during any one week should be not less than one-and-one-half times the basic rate of pay. For specific overtime requirements, please refer to the prevailing wage determinations.
Q. What are the threshold requirements for a public works project?
A. Prevailing wages must be paid to all workers employed on a public works project when the public works project is over $1,000. If an awarding body elects to initiate and enforce a labor compliance program, that has been approved by the Director of the Department of Industrial Relations, for every public works project under the authority of the awarding body, prevailing wages are not required to be paid for any public works project of $25,000 or less when the project is for construction work, or for any public works project of $15,000 or less when the project is for alteration, demolition, repair, or maintenance work.
For more details, please refer to the applicable statutes and regulations regarding the payment of prevailing wages and General Prevailing Wage Determination(s) including the footnotes. Such information is available on the Department of Industrial Relations’ website at http://www.dir.ca.gov/.
