Allocation is the means to determine benefit costs (employer contributions/portions). This can be done through one of two methods: burden or fringe.
Burden and fringe are normally mutually exclusive. This is due to the fact that there are different accounting philosophies behind burden and fringe. Both methods may be used within the same organization, but they do not usually occur on the same person.
Burden assumes you are using an estimate or "averaging" method of cost accounting, by burdening your labor costs for a percentage in respect of fringes. One of the main reasons for using burden is for timeliness sake as Labor G/L can be run on a daily basis as time is entered prior to paying the employee.
Fringe on the other hand is a more accurate (but less timely) method of apportioning or allocating expenses after the employee is being paid.
As far as the two methods working together, from an accounting point of view, if you have already "burdened" the labor expense with a budgeted percentage, you would have to "relieve" the original burden before you could allocate actual fringe expenses. Practically speaking, this seldom happens; instead any 'profit' or 'shortfall' from burdening gets accounted for separately.
ALLOCATION - PAYROLL G/L FRINGE#
Fringe Allocation refers to the process of splitting ‘fringe’ costs (e.g. payroll employer tax and/ or benefit expenses) to the cost centers in the same proportion that the time or earnings are being expensed. The elements used for fringe allocation must be a base element and not a compound element.The fringe allocation may be done on the basis of hours or dollars and you must first define an hours or dollars base element in the Pay Element (IPPE) form.
The base element is entered on the Allocation tab in the Group form. The pay components that the costing must be allocated against are defined in the Prorate element on the Allocation tab in the Group form. (i.e. employee benefit pay components).
The base element must contain either only time pay components or only earnings pay components. Never mix time and earnings pay components together.
If using hours instead of dollars as the basis for fringing, the set up in IPPC for hours pay components must include a DR = Hours Worked. In addition, on IDGA, Hours Worked must be set up as a Statistical account. Whatever the list of Time PC’s being used, UPGL must have a full distribution derived according to these Time PC’s so that the fringe benefit can be calculated. Therefore, Statistical accounts for the Time PC’s must be set up in order for fringe to work by time, not earnings.
Below is a simple example of Employer STD and Health cost fringed against Regular and Overtime earnings:
| Base PC | Amount | Distribution |
|---|---|---|
| Reg $ | 100.00 | 1111-0000 |
| Reg $ | 200.00 | 2222-0000 |
| OT $ | 50.00 | 3333-0010 |
| Prorate Benefit PC | Amount | Distribution Mask |
| STD ER | 25.00 | ????-7777 |
| Health ER | 17.73 | ????-8888 |
Total Base Amounts $350
| PC | Amount | Distribution | Proration Factor |
|---|---|---|---|
| Reg $ | 100.00 | 1111-0000 | 100/350 = 28.57% (0.2857142857) |
| Reg $ | 200.00 | 2222-0000 | 200/350 = 57.14% (0.5714285714) |
| OT $ | 50.00 | 3333-0010 | 100% - 28.57% - 57.14% = 14.29% (0.1428571429) |
A proration factor of 10 decimals is used instead of a percentage in order to avoid rounding errors.
The Prorate PC would be journalized as follows:
| Benefit PC | Proration | Amount | Distribution |
|---|---|---|---|
| STD ER | 25.00 * 0.2857142857 = 7.1428 | 7.14 | 1111-7777 |
| STD ER | 25.00 * 0.5714285714 = 14.2857 | 14.29 | 2222-7777 |
| STD ER | 25.00 * 0.1428571429 = 3.5714 | 3.57 | 3333-7777 |
| Total | 25.00 |
Therefore, ‘STD ER’ $25.00 has been split to 3 distributions.
| Benefit PC | Proration | Amount | Distribution |
|---|---|---|---|
| Health ER | 17.73 * 0.2857142857 = 5.0657 | 5.06 | 1111-8888 |
| Health ER | 17.73 * 0.5714285714 = 10.1314 | 10.13 | 2222-8888 |
| Health ER | 17.73 * 0.1428571429 = 2.5328 | 2.53 | 3333-8888 |
| Total | 17.72 |
If total amount fringed does not equal the original PC amount, the last distribution line will be adjusted.
| Benefit PC | Proration | Amount | Distribution |
|---|---|---|---|
| Health ER | 17.72 + 0.01 | 2.54 | 3333-8888 |
Defining Fringe Allocation#
The Allocations tab may be found on the on the IDGR formAn optional portion of the set up for fringing is using specific Fringe Expense debit and Fringe Liability credit accounts. If the accounts are not set up, the ‘Prorate Element’ amounts will still be prorated to the different cost centers but will not appear in a specific summary account.
The account codes that the fringe is to be posted to may be defined in two areas:
- On the General Ledger Accounts (IDGA) form there are four account usages grouped into two sets:
- Derived
- 0111 - Fringe Expense
- 0112 - Fringe Liability
- and
- Original PC
- 0115 - Fringe Exp (orig PC)
- 0116 - Fringe Liab (orig PC)
- You may set up either account usages for the Derive fringes (0111 and 0112) or for the Original PC fringes (0115 and 0116).
- You must choose one set and use that combination only.
- Fringe benefits may be summarized to total fringe amount to account usage 0111 and 0112, or fringe by its original pay components to account usage 0115 and 0116.
- On the IDGR Allocations sub-form there are debit and credit masks available for each fringe created. (The masks at this level will overlay the masks established at the G/L Account level)
The Burden feature and the Fringe Allocation feature are normally mutually exclusive. You use one or the other, but not both together.
Defining Labor G/L Burden Allocation#
In order to perform Fringe Allocation, you have to know the actual fringe costs that have been incurred, which means you must have run the payroll cycle. For companies that post labor on a daily or weekly basis, prior to payroll calculation, the Fringe Allocation method occurs too late to aid in the costing process. These companies may choose instead to ‘burden’ their labor costs at labor G/L processing time with an estimated percentage (e.g. 10% or 20%) for the ‘fringe’ costs.The Allocations tab may be found on the IDGR form.
An optional portion of the set up for burdening is using specific Burden Expense debit and Burden Liability credit accounts. If these accounts are not set up, the ‘Burden’ amounts will still be calculated to the different cost centers but will not appear in a specific summary account.
The account codes that the burden is to be posted to may be defined in two areas:
- On the General Ledger Accounts (IDGA) form there are two usages:
- 0113 - Burden Expense
- 0114 - Burden Liability
- On the Allocations tab within IDGR, there are debit and credit masks available for each burden created. (The masks at this level will overlay the masks established at the G/L Account level)
The Burden% may be entered at the department level or at the group level. If the Burden% is present at the department level it will override the Burden% indicated at the group level. Presently, the Burden method supported is ‘Percent Method’.
The Burden feature and the Fringe Allocation feature are normally mutually exclusive. You may use one or the other, but not both together.
Defining Standard G/L Interface Format#
If an interface is needed between Personality and your organization’s General Ledger system, a flat file may be created in almost any format required with the information available from the journalized transactions. A ‘standard’ format is provided that may be used as a guideline.If you have not already defined in the Interface Formats Definition (IDIF) form, load the standard interface file format using the starter_idif_hl$gl.sql script.
Note to System Administrator: Ensure that the init***.ora for your instance has the following line in it: UTL_FILE_DIR = *
Modify the standard GL requirements using the IDIF function. Rename the code from HL$GL to a user-defined code.
