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Labor Cross Charge

A cross charge is a sharing of labor resources between different organizations within your enterprise. For example, a cross charge occurs when an employee from your Northeast office works on a project for your Southwest office.

The cross charging process redistributes labor costs and associated revenue when an employee in one organization (the lender) works on a project for another organization (the borrower). The transfer of costs and revenue between organizations allows each organization to match costs with revenue and fairly assess profitability.

Considerations in Using Labor Cross Charging

Consider the following when you use labor cross charges:
  • Cross Charge Pricing: The organizations in your enterprise should agree on an internal transfer price, which is the amount at which labor costs will be transferred between organizations.

    Internal transfer prices vary greatly from enterprise to enterprise. Some enterprises transfer the cost of labor only, while some transfer the cost of labor plus benefits to the organization that owns the project. Usually the transfer price falls somewhere between a break-even amount (labor plus overhead) and the average revenue multiplier. Most enterprises develop a transfer price that splits profit between the employee’s organization and the organization that owns the project.

  • Cross Charge Timing: You must also establish a timetable for which to run the Labor Cross Charge process. The timing should take into account any labor adjustments or billing labor transfers that you make after you post timesheets. As a basic rule of thumb, you should run the Labor Cross Charge process after each timesheet period. This means that, if you post timesheets biweekly, you should run the Labor Cross Charge process biweekly.

    You should also run the Labor Cross Charge process after each labor adjustment or billing transfer process, because these postings may also contain cross charges for your employees.

After you run the Labor Cross Charge process, you can use the Labor Cross Charge report to check that the labor charges were transferred correctly.