Tuesday, February 4, 2014

Accounting for Work Breaks

How should paid work breaks be accounted for and still be Government compliant?

We recently had a client ask that question and suggested the options of (i) tracking the time as an indirect charge (similar to vacation time), and (ii) charging the time using the time charge code of the surrounding jobs.

We replied that we believe the choice was theirs.

Time charging should accurately reflect the work performed.  The keys here are accuracy (not necessarily precision) and reasonableness (i.e., industry norms and effectiveness).  Contractors should have reasonable effective timekeeping procedures to ensure labor hours are accurately recorded and then applied to the applicable charge codes (i.e., jobs).

Nearly all of our clients charge short duration (i.e., 15 minute) paid breaks as a direct charge to the job that was worked on just prior to and/or just after the break in a consistent and unbiased manner.  We believe this is reasonably accurate most of the time.

However, there are contractors that accumulate unproductive paid break time as an indirect expense and then allocate those minutes over a base that includes all of the hours worked during the day or during the pay period.  One such contractor is a very large manufacturer that has many small jobs.  Production line employees sometimes work less than 20 minutes on a job and it is not uncommon to find situations where employees work on ten or more cost objectives (jobs) in a given day.  Adding a 15 minute break to a 20 minute job would significantly distort the time charged to that job. Employees scan bar codes to clock in and out of each job.  The time needed for any particular job varies significantly depending on the complexity of the product being made.  Due to its circumstances, the contractor chose to expend more effort to create a more precise allocation of the unproductive paid break time.

Ultimately, it comes down to a business case and determining what's reasonable in the circumstances. Most auditors we know would agree.

If you want to discuss your particular situation, contact Dave Koeltzow (Kelso) at 360-910-4146 or email him at dkoeltzow@pacificnwc.com.

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