Should they be considered in cost of sales or operating expenses?
Salary Costs in a services company
Answers
One approach is to have time-tracking. Spend time on a client = cogs. Spend time making coffee = ops. Point is to maximize billable hours (aka cogs) so you'll need to measure it.
Salaries are typically an operating expense in a services company for GAAP purposes. COGS typically is used in a company that produces a product, not a service.
You can obviously look at it from a managerial or finance perspective as a cost of a "billable hour" but I haven't really seen it done that way.
Anon
If your salaried staff include folk who deliver a revenue generating service (e.g. field service work like maintenance, equipment installation, consulting services) and you need to measure project/job/order margins, I think that's part of COGS (or COSS=cost of SERVICES sold). Admin staff (including management, finance,
For internal
For external reporting, follow your
Depending on your organization, there are also techniques to choose from in allocating salary costs (loaded vs not) to each project/job/order, e.g. a blended rate per job category vs a specific rate for each person (the latter can mean you may end up disclosing salary details of individuals.
Regards
Len
Filed Under:
Human Capital