Direct Labor Cost

Hi there, @CDamiani.

You'll want to open the payroll item settings and ensure to post all payroll expenses to the right account. Let me guide you through the steps.

1. In your QuickBooks Desktop, go to the Lists menu.
2. Select the Payroll Item List.
3. Find and open the payroll item.
4. Click Next to open the Agency for employee-paid liability section.
5. Under the Liability account field, select the appropriate account (Direct Labor Cost) from the drop-down.
6. Click Next until you can select Finish.

I'm adding this article for more details: Edit a payroll item.

Also, I'd recommend seeking help with your accountant so they can offer you some advice on correct accounts to use.

Just in case, you can run and customize payroll reports, here's an article you can read for the detailed steps and information: Customize payroll and employee reports.

Please post a reply below if you have additional questions with your payroll expenses. I'll be more than happy to assist you again. Have a great day and take care always.

The way to do this is to set up new earnings items that use the other desired accounts (compared to the one used by default) and then use them on the appropriate employees.

So, for  some employees you might use an item associated with direct labor expense, others an item associated with indirect labor, and for others you could even use both items if that is appropriate and then split the time between them.

I am using Quickbooks Desktop 2021 Pro edition.

I am not finding a "Payroll Item" list. Am I doing something wrong? There is no option for this in my list.

Thanks for joining the thread, @KimiBee. I'm here to lend a hand. 

To start, let's check that your QuickBooks payroll services are turned on and are active. Here's how:

1. Go to the Employees menu at the top.
2. Select My Payroll Service.
3. Choose Manage Service Key.
4. From there, you'll see if your payroll service is active. 

Next, make sure that you're getting all the payroll updates. 

1. Go to the Employees menu at the top.
2. Select Get Payroll Updates.
3. Click on the Update button, then OK.
4. Exit the QuickBooks company file and close the program.
5. Reopen the program and go to the company file.

Once done, go to the Lists menu at the top again and check if you're now able to see the Payroll Item List.

If still not showing up, the data on your company file could be damaged. You can run the Verify and Rebuild data to fix this.

Keep me posted on how things go on your end. I want to ensure this gets resolved for you. Have a great day.

I am having the same Problem. We use ADP for our payroll service and I use QB online Advanced. Can you help me apply Direct Labor and Indirect Labor. 

Greetings, @Donnaevans. I want to provide you with some information on how to manage labor cost in QuickBooks Online Payroll.

If you have access to an export tool, you can transfer the payroll data straight to QuickBooks. If not, you'll have to manually record them in your account.

I'd advise consulting with your accountant first to determine the proper accounts to use when creating journal entries.

To start, make sure to create an account in your Chart of Accounts so you can track payroll liabilities and expenses. Once done, you can enter the payroll paychecks into QBO. Here's how:

1. Pull up your employees' payroll pay stubs or a payroll report from your payroll service.
2. Click on + New.
3. Choose Journal Entry.
4. Go to the Journal date, and type in the paycheck date.
5. If you like to track the paycheck number, fill it in the Journal no. field.

You may also find these guides helpful when managing payroll transactions and labor costs.

• Run payroll reports in QuickBooks Online Payroll
• Track hourly labor costs and profitability by project in QuickBooks Online

Keep in touch so we can assist you further about this matter or QuickBooks in particular. Stay safe!

I sorry that is not what I needed. I have ADP set up under expenses and post it to Wages, etc. The owner of our company wants some employees to go to Direct Labor Cost and some to Indirect labor cost plus G&A cost for the rest. It looks like I can set up an account under Direct Labor Cost (as wages etc.) and do the same with Indirect (cost). But I am not 100% sure that is the correct way. 

Hello there, @Donnaevans.

Thank you for providing more details about your concern and for utilizing your tools to come up with the solution you have right now. 

I agree that you can set up an account under Direct and Indirect Labor Costs and associate it with whatever account you want depending on your business. 

On the other hand, you can also track your labor costs and profitability in QuickBooks Online by utilizing the project feature. You can add project income, expenses, and labor costs, and run project-specific reports from a single dashboard. If needed, you can also add old transactions to new or ongoing projects. 

Let me show you how to create a new project. 

1. Go to Projects and select New Project.
2. In the Project name field, enter the name of the project.
3. Select the project customer from the Customer dropdown.
4. Add any notes or details about the project in the Notes field.
5. Select Save. 

Once done, you can add both new and existing transactions to the project. For more information on how to use projects, refer to these articles: 

• Set up and create projects in QuickBooks Online.
• Track hourly and labor costs and profitability by projects in QuickBooks Online.

However, I'd still recommend consulting your accountant if you're unsure of how to handle this. Your accountant will provide suggestions based on what's suitable for your business and manage it properly. If you don't have one, you can find through this link: Find an accountant. 

If you're already set, you might want to modify your reports to view the specific data you need. You can read through this article: Customize reports in QuickBooks Online. 

Let me know if you have other concerns about handling your accounts in QuickBooks Online. I'm just a reply away. Have a great day!

I am still looking for these same answers but not seeing what I need!

So if I create a Direct Labor payroll item and add a COGS Direct Labor account also in my Chart of Accounts, wouldn't I also need to create payroll items for the COGS Direct Labor liabilities? And how do those liabilities get mapped to those accounts?

Thanks, Lisa

Yes, you'll also need to create separate payroll items for the COGS Direct Labor liabilities to track your payroll expenses accordingly, Lisa. We'll guide you on how to do this below.

You get to map your direct labor liabilities to their appropriate accounts while setting up your payroll items and assigning them to the employee's profile. If you haven't created one, you can follow the steps below. But before doing so, we'd recommend consulting your accountant to ensure this approach is suitable for your business structure. 

1. Go to Lists, then Payroll Item List.
2. Select the Payroll Item dropdown, then New.
3. Choose either EZ or Custom Setup, then Next.
4. Select the type of payroll item you want to create, then Next.
5. Select the appropriate wage type, then Next.
6. Enter a name for the pay item, then Next.
7. Select the Expense account (COGS Direct Labor liability account) where you want to track direct labor.
8. Click Finish.

After that, add the item to the employee's profile. You can check out this article for the complete guide: Add or change pay types.

Additionally, you might find this article helpful to guide you in creating payroll and employee reports to track your expenses: Customize payroll and employee reports.

Please let us know if you need further assistance setting up payroll items. The Community is always here to help you anytime. Have a good one.