Labor Distribution Basics – What All W-2 Employees Need to Know

You may have a good understanding of labor distribution and total timekeeping, but it is very important that all W-2 employees at your organization fully understand why it is so important to properly record your time. This training guide can help explaining these principals to all staff. 

Time sheets will be populated in fifteen-minute intervals and each quarter hour will be classified into 1 of 7 labor categories: 

  • Direct Time  Time worked directly related to one specific commercial or government   project/customer.  Time spent that is usually billable. All direct time will require selecting an active non-overhead project or customer related to that time with mandatory note.  
  • Fringe Time – Compensated absences. This includes any paid time off: Vacation, Holiday, and Sick time.  There may be minimum time requirement to use Fringe labor.  Any Fringe time reported will require selecting the Fringe Project with a mandatory note. 
  • Overhead Time – Time spent in support of customers or projects but cannot be directly attributed to one specific Project or customer.  Overhead include expenses and labor related to facilities.  (Rent, utilities, maintenance)  

Overhead time also includes time spent in support of existing products or offerings.  Time spent training or working to improve an existing product or service, that potentially benefits all customers, is Overhead time.  Overhead time will require selecting the Overhead Project and a mandatory note. 

  • General & Administrative Time  Time spent in support of running a business.  G&A time does not support any specific project/customer.  Examples of G&A time are executives, accounting, human resources, business development.  G&A time will require selecting the G&A project and a mandatory note. 
  • Internal Research & Development Time – This time often referred to as IRAD is research done not related to an existing products or services.  The research cannot be billed to a customer because when research is paid it is no longer internal. This time is ultimately a part of the G&A project and will require a mandatory note. 
  • Bid & Proposal Time – Time spent responding to RFP’s (requests for proposals) this time does not include the pursuit of sales. B&P time does not include business developmentconferences, or advertising.  B&P time will require selecting the G&A project and a mandatory note. 
  • Unallowable Time – Unallowable time will rarely be used.  It does include community relations, charitable donations, entertainment, advertising, and trade shows. 

Things to Keep in Mind

G&A time, IRAD time, and B&P time all require the same G&A project.  That is correct, they are separated for time keeping purposes and separate in expense account numbers, but part of the same Project/cost pool.

For expense reports travel and meal expenses are separated by the same categories as time. Unallowable expenses may arise during travel if entertainment or alcohol expenses are incurred by the organization.

It is rare for any one employee, regardless of their role, would ever have 100% of their time in one time category.  It is important to understand why your time goes to which category.

Managers, supervisors, and executives can be complicated.  Overseeing staff in multiple Direct projects becomes overhead time.  Executive time is usually G&A, but can cross some Overhead and Direct time.