Direct Staff Cost Allocated to Engagement
Allocating a consultant's salary cost to a specific client project based on time recorded on the timesheet.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Engagement Direct Labor Cost (COGS) | Expense (+) | 3,500.00 | - |
| Salaries Payable (Allocated) | Liability (−) | - | 3,500.00 |
💡 Accountant's Note
Professional services cost of revenue is primarily staff time. Time recorded against a billable project code is the direct cost matched to that engagement's revenue. The remaining unallocated salary is overhead.
Practitioner & Systems Framework
💻 ERP Architecture
Staff cost allocation from total salary to engagement COGS is driven by the percentage of billable hours recorded against the engagement relative to total available working hours. The allocation rate: (engagement hours / total hours in period) × gross salary cost including employer taxes and benefits. This allocation must be consistent with the timesheet data — if a consultant records 60% of their hours to one client and 40% to overhead, their salary cost should be split accordingly. Many ERP systems (Oracle, SAP, Deltek) automate this allocation using the timesheet data feed. The unallocated portion flows to General & Administrative overhead — the split directly drives the gross margin and utilization rate KPIs.
⚠️ Audit Flags
(1) Allocation rate consistency — is the same allocation methodology applied consistently across all fee earners and all periods? Ad hoc changes in how overhead vs. direct labour is split can manipulate gross margins. (2) Fully-loaded cost vs. base salary — some firms allocate only base salary while others include employer taxes, pension, and benefits. The chosen method should be disclosed and consistently applied. (3) Non-billable time — time recorded to admin, training, or non-billable projects must flow to overhead, not engagement COGS. Misrouting non-billable time to client codes overstates engagement margins.
📄 Required Documentation
Timesheet allocation report by fee earner and engagement, payroll register, employer tax and benefits cost schedule, allocation policy documentation, and utilization rate calculation.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.