Level 1

Cost of Labor - COS vs Payroll Expense

Just started using QBO for a carwash in which at this time i simply need to track my labor costs.


Should i classify labor in the Cost of Labor - COS category so that it show up in the gross profit calculation or as a payroll expense in which it will then show up in the net operating income calculation?


I eventually plan to use QBO for timekeeping / scheduling and doing payroll and would prefer to not have to make changes if this plays a part in where to classify it.

Community Champion

Employees and payroll

Cost of Labor is when you hire subcontractors that bill you for labor or time and materials. Employees are posted as Payroll Expense sometimes called Gross Payroll. Payroll includes gross wages (W2) plus your share of FICA, FUTA, SUTA, and some people fold workers comp insurance under the umbrella.


If you are contemplating your own labor - it never appears in the books of a sole-proprietor or LLC - you cannot expense your own labor.