Pro-rating costs of personnel can be beneficial in cost analysis of services provided by the city. Personnel costs include the gross wages, and the city share of taxes, pension, insurance and other benefits. Chapter 545 of the state code defines those benefits which are allowed under the benefit and pension levies. There are three basic reasons for pro-rating personnel costs to various departments:
- To accurately document the exposure to risk for workers compensation premiums
- To accuately account for personnel costs associated with delivering a particular service
- To accurately segregate those labor costs associated with grants or other special accounting requirements
There are primarily two methods to allocate labor cost for the purposes listed above: estimates or actually recording time spent on each activity. If a city wants to monitor and report actual time worked, there are a number of considerations. First, how cumbersome would such a detailed accounting be? Secondly, what would the benefit be?
Recording Actual Time
Some grants will stipulate if a portion of the wages and/or benefits may be paid under the grant program. Accurate detailed time records need to be available to document labor costs applied to the program. For other more informal processes, each employee would record the time spent on each activity; then payroll would record and pay accordingly.
Parameters are normally put onto this accounting. For example, if a person spends an hour or more on a task then it is recorded against that activity, otherwise a default activity (where most of the individuals time is spent) is used. This avoids creating unrealistic and unmanageable demands for the recording and processing of detail. To be able to handle more detail, some organizations have adopted the use of computerized timeclocks to maintain the detail. Software programs are then designed to use that data to generate the payroll and allocate the wage and benefit costs against each budgeted activity.
Estimating Time
For a smaller organization, a modification of a time clock system is available through estimation. Each day the employee would estimate the amount of time used for each activity. To use a percent allocation the employee must have a reasonable idea of how much time is spent on each activity throughout a year. Then each payroll is pro-rated based upon the agreed allocation. It is a good idea to review this percentage at least annually to identify any major changes that may have occured.
Most computer payroll systems can handle pro-rated payroll using either the pro-rated percentage or actual hourly allocation. Usually the benefits, city share of the taxes (such as FICA), pensions, and insurance are prorated in the same manner as the wages.
