At the end of each payroll cycle, your payroll provider generates a summary of wages and related expenses. This is entered into Cetec ERP as a journal entry, typically crediting cash and debiting a payroll or production labor account.

For most companies, this is a short, repeatable step handled by accounting each pay period.

This payroll entry is designed to align with labor already recorded through work orders, not to introduce labor cost into the system for the first time.

Some teams create a forward-dated or reversing payroll entry during the period. This provides a more current view of financials and is replaced by the actual payroll entry once payroll is finalized.

Indirect labor covers general attendance such as shift start, breaks, and end of day. Cetec ERP includes a clock in and clock out interface that can be used on a shared device. This produces timesheets that can be exported for payroll processing.

Many payroll systems provide their own time tracking tools. In those cases, indirect labor tracking is often handled entirely within the payroll platform.

Direct labor is recorded against work orders. Employees log time using barcode scanning or manual entry, and that time is tied directly to a job.

The system applies labor rates and records actual production cost as work is performed. Labor cost is calculated based on configured rates at the employee, work center, or location level. This feeds job costing and financial reporting without waiting for payroll.

Labor postings are triggered by transactional events such as work order completion or invoice/shipment (invoice creation, depending on workflow configuration.

When time is logged to a work order, Cetec ERP calculates the labor cost and applies it to the job. How that cost appears in financials depends on the transaction type.

For build-to-stock work orders, labor is typically absorbed into inventory value. This means the system debits inventory (finished goods or WIP) and credits a labor-related account. Labor becomes part of inventory value and remains on the balance sheet until the product is shipped. Overhead can be applied in a similar manner, using configured rates and absorbed into inventory alongside labor.

Once the product is invoiced and shipped, that accumulated cost, including labor, moves into cost of goods sold.

Labor is absorbed into the inventory value of the finished product as production is completed. In configurations where companies want COGS broken out explicitly, that accumulated value can then be presented at shipment or invoicing as separate materials, labor, and overhead components rather than as a single rolled inventory-to-COGS movement.

For direct or build-to-order shipments, labor may move more directly into COGS as part of the invoicing process. In all cases, labor is tied to production activity and follows the product through to financial reporting.

Payroll is recorded separately as a financial transaction. This entry reflects the actual cash outlay for wages and aligns accounting with the labor already recorded through work orders.

The payroll account used in this entry should match the labor account used in your system’s GL mappings. This ensures that the operational labor postings and payroll accounting offset correctly over time.

Labor captured on work orders does not follow a single fixed accounting path. The system uses your GL mapping settings to determine where that value is posted.

Depending on configuration and workflow, labor may:

• Be absorbed into inventory (finished goods or WIP)
• Move into COGS when product is invoiced and shipped
• Be reflected in an expense account through payroll entries

The accounts used for labor postings are defined in your GL mappings. These mappings also determine which payroll account should be used during payroll entry, so that operational labor postings and payroll accounting align correctly over time.

Direct labor from work orders is posted based on transaction events such as work order completion and invoicing.

In a typical configuration, this results in:

• Debit to COGS (or Inventory, depending on workflow)
• Credit to Production Labor (or mapped labor account)

Payroll is then recorded as:

• Debit to Production Labor (or matching payroll account)
• Credit to Cash

This pairing ensures that labor captured operationally is offset by payroll at the financial level over time.

Because labor is already hitting COGS, gross profit reflects current production activity. Net income will not fully reflect payroll until the payroll entry is recorded.

Mapping payroll directly to COGS will double count labor, since work order labor is already posted there. This leads to overstated costs and inaccurate financials.

Work order labor is configured to wash through the general ledger without affecting the profit and loss statement.

This is done by mapping both the debit and credit for labor postings to the same account, effectively removing labor from appearing anywhere on the P&L.

Payroll entries are then used to determine where labor is recognized financially.

Financials will not reflect labor activity during the period. Both gross profit and net income will appear higher than actuals until payroll is entered.

This approach provides control over financial timing, but relies on manual accounting decisions instead of real-time operational data.

In this configuration, payroll can be mapped to either COGS or an expense account depending on how you want labor reflected on the income statement.

Mapping payroll to COGS will impact Gross Profit, while mapping to an expense account will impact Net Income.

Most manufacturers adopt the default approach once time tracking is consistent. It aligns financial reporting with actual production activity and reduces reliance on end-of-period adjustments.

This approach depends on accurate time tracking and labor rates, as financial results will reflect the data captured on the shop floor.

The manual approach can be useful early in implementation, especially while validating time tracking accuracy or labor rates.

Keep payroll mapped to a payroll or production labor expense account that aligns with your general ledger. Ensure work order labor mappings are consistent so postings behave as expected.

Avoid posting payroll directly to COGS unless you fully understand how it interacts with work order labor tracking. Validate labor rates and time tracking processes early to prevent downstream issues.