Automating Job Costing Overtime, an 800 pound gorilla with an attitude
Calculating and distributing employee overtime is a burdensome process that many business owners and payroll administrators have to deal with on a weekly basis. Everyone has a different opinion on just “HOW” that overtime is to be calculated and distributed. By everyone, I mean the business owner, the payroll clerk, heck even the Federal and State government. No wonder it’s just a problematic situation!
Overtime goes to the time worked after 40 hours, or maybe over x hours per day as well. This seems reasonable, but would it be simpler if overtime were just distributed over all the jobs that the employee worked that week. That seems fairer, as each job gets a share of the overtime costs for that week.
Then again, maybe the overrun that messed with scheduling to cause overtime in the first place happened at the start of the week, the jobs at the end of the week, just so happen to be all overtime hours because of that job. So the job that really should have the overtime attributed to it, gets none or only a share of the overtime, while the innocent jobs that went as planned bear a higher, “undue” or “unfair” cost. Heck the job that caused the delays and overruns might have happened the week before.
One should also consider costing all time at the regular rate, and then costing all overtime to the overhead job.
And now don’t forget to do weighted average overtime after the overtime is initially calculated adds another layer of … well … shall we say obfuscation.
Even on a case by case basis, there often is no clear right or wrong answer. Maybe there is a reason Job Cost Accounting is consider such a bear by so many and why some accountants avoid it at all costs.
Automatically distributing overtime, like Crew Overtime Entry Solution can do, will either occur after the 40 hours / x hours per day, or it can average weight distribute overtime over all jobs. Or it can leave your entered hours alone and just make an overtime adjustment to an overhead job. But even with automation there will be basic tradeoffs that will occur.
For usually straight forward set in stone accounting, this area is decidedly gray.