Question
- How to best set up Cost Centers?
Environment:
- Push Web App
Answer
Setting up Cost Centers can be tailored to your specific business needs. Below are some examples to help guide your decision, highlighting the pros and cons of each setup. This will assist you in choosing the best approach to understand and manage your payroll costs effectively.
Department Based
Organizing Cost Centers to match Departments is ideal for new business owners who may not be fully familiar with payroll processes. This approach creates a straightforward way to compare scheduled labour costs to actual payroll expenses.
Pro:
- Since Departments group Positions, reporting becomes simpler. This setup lets you review labour and payroll costs side by side and compare values rather than examining costs for each employee or position.
Con:
- Cost Centers being organized by Department does not offer granularity if there are any discrepancies, as Departments group multiple Positions.
Examples: Front of House (FOH), HR, Management, or Front of Store (FOS)
Position Based
Setting up Cost Centers to match employee Positions is ideal for businesses familiar with payroll processes seeking detailed insights. This approach simplifies payroll expense comparisons, helping team members understand costs at the position level and clarify variations.
Pro:
- This setup allows your team to quickly pinpoint which Positions may be over or under budget in payroll, facilitating faster follow-up since the specific Position is easily identifiable. For instance, if an accountant unexpectedly goes on unpaid leave, it would explain why payroll costs are lower than initially planned.
Con:
- Organizing Cost Centers by Position may not match your team's approach to comparing scheduled labour (such as by Department). This misalignment can lead to challenges in data comparison and may necessitate manual calculations for totals.
- For instance, if scheduled labour costs were $250 higher for the Front of House Department, your team may need to manually total the payroll costs for EACH POSITION in the FOH department to identify the discrepancy.
Examples: Cashier, Hostess, Accountant, or Budtender
Salaried Based
Setting up Cost Centers based on employee pay frequency (e.g., hourly or salaried) is a great choice for new businesses with fewer employees. This method simplifies tracking payroll expenses and improves clarity around the costs tied to each pay structure.
Pro:
- This approach helps your team review payroll budgets by understanding why some numbers remain steady while others fluctuate, especially if you have both part-time and full-time employees.
- For example, part-time employees often have variable hours, causing payroll expenses to fluctuate compared to scheduled labour, while full-time employees usually have fixed salaries that keep budgeting consistent. By structuring Cost Centers according to pay frequency, your team can more effectively monitor these trends and manage budgets.
Con:
- As your team grows, this approach might not provide the detailed insights needed to identify discrepancies within specific departments or positions when grouped solely by pay frequency.
Examples: Hourly or Salaried
Additional Information
Remember that there are two different types of Cost Centers, and we recommend that both are set up to allocate employee payroll costs properly:
- Employee Cost Center: when you assign a Cost Center in an Employee Profile. In this setup, Employees can only have one Cost Center, even if they hold multiple positions
- Position Cost Center: when you assign a Cost Center to a specific Position from the Employee Positions page
Why do we suggest setting up both Cost Centers?
If an employee earns income in payroll that isn't linked to a specific Position, those earnings will automatically default to the Employee Cost Center for allocation.
- For example, stat holiday pay is based on an employee's previous earnings, not on position, so it should be allocated to an Employee Cost Center instead of a Position Cost Center. However, if there’s no Employee Cost Center assigned, the stat holiday pay will be categorized as an Unknown Cost Center in payroll reports, and this may cause confusion and discrepancies in reading reports.
Please note that only Super Administrators can set up Cost Centers.
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