Those of us who work with project costing in Oracle ERP are well used to capturing labour cost on projects by recording labour hours against a project and task, and calculating their cost using a schedule of cost rates. This approach, so familiar to those of us with an E-Business Suite background, has several advantages, key among these being the ability to streamline the forecasting process. Using defined cost benchmarks, organisations can project future expenses with greater precision, reducing the likelihood of budget overruns. This predictive capability is particularly valuable in industries with fluctuating costs due, for example, to a high turnover of agency staff or other contingent workers.
However, throughout many years of consulting I have come across numerous use cases where this ‘traditional’ approach is not the best fit for the requirement. For example:
- Consider a professional services provider where many of their consultants are assigned to specific customer projects with a 1:1 ratio. In this case it would be preferable to post the actual payroll cost to the relevant project WBS and so avoid any under or over-absorption in the cost centres.
- Or consider a UK Higher Education Institution (HEI) conducting sponsored research projects. The terms and conditions of a specific research grant may specify that only certain elements of a researcher’s actual payroll cost can be recovered from the project’s funder. For example, basic salary & superannuation might be recoverable, but not maternity, paternity, adoption, parental or sick leave costs.
Oracle Project Costing has always supported a standard costing approach for project labour. Introduced in Oracle Project Management Cloud 20B, the Labour Distribution functionality begins to address actual payroll cost requirements, enabling rule-based distribution of payroll costs to projects, awards, or general ledger accounts. Prior to quarterly release 24A, Labor Distribution provided support for 3rd party integration to non-Oracle payroll systems. Release 24A introduced 1st party integration with Oracle Fusion Payroll, enabling distribution of payroll costs to projects using flexible rules, and set the foundation for future enhancements.
Using Oracle Labor Distribution to Capture Project Actual Payroll Costs
Let us compare the process steps in the two approaches. The timecard-driven approach uses entered labour hours to drive both payroll and project costing, so that a project’s costs include only those hours specifically booked to the project.
On the other hand, Labour Distribution is intended for ‘static’ labour populations whose costs can be distributed based on a percentage allocation rather than costing labour hours from timecards. This process starts with payroll and uses Labor Schedules to specify how much of which payroll elements are distributed to projects and tasks.
Labor Schedules – Defining the Distribution Rules
The core component of Oracle Cloud’s Labor Distribution is the Labor Schedule. These Labor Schedules specify a time period and set of distribution rules that determine how a person’s labour cost gets distributed to a project, award, and/or general ledger account combination, enabling you to import payroll information from any source system and distribute it efficiently.
Labor Schedule Types
As at quarterly release 24D, three types of Labor schedules are provided:
- Person Assignment, where payroll costs are distributed based on the associated person assignment.
- Pay Element, where payroll costs are distributed using the payroll element associated with the payroll cost, regardless of the person’s Assignment. For example, the ‘Basic Salary’ pay element might be distributed to a project but not the ‘Car Allowance’ or ‘Bonus’. This schedule type is business unit specific, taking the business unit from the person’s Assignment.
- Person Assignment Pay Element, where payroll costs are distributed using a combination of a person’s assignment and the pay element on the payroll cost record, allowing you to address more granular business requirements.
If more than one of these Labor Schedule types exist for an imported payroll cost, the Person Assignment Pay Element type will take precedence over the Pay Element schedule, which in turn overrides the Person Assignment type.
Continuing the expansion of labour cost distribution capabilities, quarterly release 25A, now available, brings us the Payroll Cost Distribution to Projects Using Payroll Costing Configuration feature. This allows payroll costs to be distributed to projects using payroll costing configuration values. This new Labor Schedule is applied after checking if the associated person and assignment have any applicable ‘assignment’ Labor Schedules.
This continues the expansion of labour cost distribution capabilities in Projects, providing a cost-based distribution option in addition to the person assignment methods.
Labor Schedule Distribution Rules
A Labor Schedule version can have multiple distribution rules. To associate a distribution rule with a project, you must specify the usual key project attributes:
- Project
- Expenditure Organisation
- Expenditure Type
- Task
- Award (sponsored projects only)
- Funding Source (sponsored projects only)
You must also specify the Percentage of the cost associated with the Labor Schedule that you want to allocate to the distribution rule.
To associate a distribution rule with a general ledger account, you must specify the GL Account that you want to use for the distribution rule, and the Percentage of the cost associated with the Labor Schedule that you want to allocate to the distribution rule.
The sum of the distribution rule percentages in a Labor Schedule version must be less than or equal to 100.
Maintenance and Reporting
Two File Based Data Interface (FBDI) templates are provided for Labor Distribution:
- Import Payroll: The Import Payroll template enables loading of payroll costs from non-Oracle payroll sources via Excel.
- Assignment Labor Schedules: Though the Redwood UI is user-friendly, it is not optimal for entering or updating large volumes of Labor Schedule data. The Assignment Labor Schedules FBDI template is a useful alternative that allows you to create new Labor Schedules (Header, Version, and Distributions) from Excel, and to create new Versions within an existing Header.
From the outset in 20B, Oracle have delivered OTBI subject areas for Labor Distribution, enabling you to include Labor Schedules and their components in your custom reporting. For example, you could create a report of Labour Schedules Due to Expire, and use the output to populate an Assignment Labor Schedules FBDI to update the expiring Labor Schedules.
And There’s More to Come
Oracle is continuing to invest in the effective and efficient distribution of payroll costs to projects, with a roadmap of future enhancements in the pipeline. The widely anticipated Payroll Time & Labor Actual Integration and Liquidation enhancement is a potential game changer. Other items on the roadmap include:
- Labor Encumbrance
- NIH Salary Cap (US Govt.)
- Effort Reporting
In Summary
Accurate management and reporting of project labour costs can be a complex, time-consuming, and challenging activity. Implementing Labour Distribution streamlines the process of distributing actual payroll costs to projects, reducing the administrative burden while enabling improved project labour cost tracking, reporting, and compliance with sponsor requirements.
Get in touch with us at Namos and we’d be happy to discuss Levelling Up your Oracle Project Management Cloud deployment.
