Labor Distribution with Gusto, ADP or Paychex for GovCon

Many small government contractors run payroll in Gusto, ADP or Paychex and keep their books in QuickBooks Online. Payroll gets paid on time and the wages sync to QuickBooks. What is missing is the split of that pay across contracts, based on approved timesheets, that DCAA reviews. This guide is for the owner or bookkeeper who has to bridge the two every pay period. It is part of our series from payroll to job cost.

Jordan Glaze sees where the gap is:

"Most government contractors have a good starting point in QuickBooks Online by creating a Government contracting chart of accounts, however the issue for compliance tends to come up with time tracking and proper payroll distribution and allocation."

Jordan Glaze, Business Development Specialist/Accountant, Wendroff & Associates, CPA

The short answer

Each pay period, export the payroll register for that period: one row per employee with gross pay by earning type, hours paid, employer taxes and employer benefit contributions. Match each employee to their approved timesheet, use the gross pay to calculate their cost per hour, and charge it to their contracts and indirect activities in proportion to the approved hours. Post the result to QuickBooks Online as a journal entry by class or project.

The payroll provider supplies the dollars. The timesheets supply the split. Labor distribution is where they meet.

Match each payroll to the pay period its hours were worked, not to its check date, and keep the gross pay exactly as payroll calculated it.

What labor distribution needs from payroll

Field in the payroll report	What labor distribution uses it for
Employee name or ID	Matching each row to the right timesheet
Pay period start and end dates	Matching the payroll to the hours worked in that period
Gross pay, split by earning type (regular, overtime, PTO, holiday, bonus)	The dollars to distribute; leave pay goes to leave accounts, worked pay to contracts and indirect activities
Hours paid	A check against approved timesheet hours, and the cost per hour for hourly staff
Employer taxes (Social Security, Medicare, FUTA, SUTA)	Fringe pool
Employer benefit contributions (health, retirement match)	Fringe pool
Net pay and employee withholdings	Not used; they do not change the cost charged to contracts

Employer taxes and benefits usually go to the fringe pool, and whatever method you use applies the same way to every contract. See employer payroll taxes and fringe costs.

Gusto

What to export. The Payroll journal report. Gusto describes it as showing "detailed payroll information for each pay period and employee," with filters for date range, employee, job, earnings and taxes. Go to Reports, then Payroll Journal, set the date range, generate the report and download it as CSV or PDF. For a full year of raw data, the Payroll data export downloads an Excel workbook with tabs for earnings, taxes and deductions.

What to know.

Gusto's general ledger report runs by check date only. Gusto says it does not support ledgers by pay period. Labor distribution follows the period the hours were worked, so pull the payroll journal for that payroll and match it to the pay period of the hours.
Labor cost allocation is percentage-based. Gusto's labor cost allocation report splits a worker's pay by a percentage rule, "No time tracking required," in Gusto's words. Gusto also says those percentages do not split an employee's wages across QuickBooks Online classes. For DCAA, the split has to come from each period's approved hours.
Workforce costing needs Gusto time tracking. Gusto can cost labor by project when employees track time to projects in Gusto. Non-job items such as taxes and benefits are spread by each job's share of the job-specific pay.

ADP (RUN Powered by ADP)

What to export. RUN's standard reports can be filtered by dates, employee names and tax details, and exported to Excel with the Export to Excel button at the bottom left of the report page. ADP's guide notes that the Payroll Summary report lists employer tax and deduction totals by check date, and that clicking a check date opens the detail for an employee.

What to know.

Run the report for the payroll you are distributing and match it to the pay period of the hours. Confirm that the employees and gross pay are the ones on that payroll.
RUN's general ledger feature sends each payroll to your accounting software. ADP's setup steps assign general ledger accounts to payroll items, with optional department and employee mappings. Splitting each employee's pay across contracts by approved hours is the labor distribution step that comes after, and its journal entry moves those wages to the contracts.

Paychex

What to export. The payroll register. Paychex says that once payroll is processed, the register is available under Paychex Reports, where you can export it, save it or share it with your accountant.

What to know. Paychex lists what a complete register holds for each employee and pay period: pay period dates, regular and overtime hours, pay rate, gross wages, additional earnings such as bonuses, employee taxes, deductions, and the employer's taxes and contributions (FICA, FUTA, SUTA, health benefits and retirement matching). Those are the fields in the table above.

Checks before you post

Same people, same period. Every employee on the register has an approved timesheet for the period, and nobody on a timesheet is missing from payroll.
Gross pay ties. The total you distribute for each employee equals their gross pay on the register, to the cent.
Hours make sense. For hourly staff, hours paid should match approved hours; a difference usually means a late correction. For salaried staff, payroll often shows a standard number of hours while the timesheet shows what they actually worked; the timesheet is what splits the salary. See salaried employees and total time accounting.
Leave stays off contracts. PTO and holiday pay go to leave accounts, matching the leave hours on the timesheet.
One-time pay is handled on purpose. Decide how a bonus is charged (spread across the employee's work or to one activity) and apply the same rule every time.
The entry moves cost, it does not add it. The journal entry credits the wages account your payroll sync used, so labor is not counted twice in QuickBooks Online.

DCAA checks the same ties. Its floor check audit program asks whether hours on timesheets are reconciled periodically with attendance and payroll records.

How WiseCost uses your payroll export

WiseCost is a QuickBooks Online add-on for DCAA timekeeping and labor distribution. QuickBooks Online stays your accounting system. Each payroll period, it imports the payroll register from Gusto, ADP, Paychex or another provider as a CSV or XLSX file. The steps are in the Help Center article Importing payroll from Gusto, ADP or Paychex.

Import the register as CSV or XLSX. In Labor Distribution, on the Employee Review step, click Import payroll and upload the export from Gusto, ADP or Paychex. WiseCost detects the employee, gross pay, employer taxes, benefits and hours columns, and you correct any it got wrong.
Review every amount. The preview is editable, and you re-match any row that is not matched to the right employee. The imported gross applies to that period only.
A second look on every import. WiseCost points out amounts worth checking, such as a difference against configured pay, logged hours or the previous import. The checks are advisory and never change a number.
Bonuses as adjustments. Add a bonus or a correction as an adjustment for that employee and period, distributed across all their classes or to a specific one.
Other providers. The import reads CSV and XLSX and lets you correct the column mapping, so registers from other payroll providers can work too.

To see the whole cycle on QuickBooks Online, from approved timesheets to the posted journal entry, watch the full demo:

FAQ

DCAA does not approve payroll software. It evaluates your whole accounting system. Gusto runs payroll and can sync wages to QuickBooks Online, but its labor cost allocation report uses percentages without hours, and Gusto says those percentages do not split wages across QuickBooks Online classes. Labor charged to contracts has to follow approved timesheets, so that step happens in labor distribution.

The Payroll journal report for that payroll, matched to the pay period of the hours. Gusto describes it as showing detailed payroll information for each pay period and employee, and it downloads as CSV or PDF.

A payroll report from RUN's Reports area run for that payroll, with employee-level gross pay, hours and employer taxes, exported with Export to Excel. ADP's guide notes the Payroll Summary lists employer tax and deduction totals by check date, with employee detail one click away.

The payroll register, available under Paychex Reports after payroll is processed. It holds hours, gross wages, employee taxes, deductions and employer taxes and contributions for each employee and pay period.

The pay period. Labor cost belongs to the period the hours were worked. When a pay period crosses two months, split its cost between the two months.

The Bottom Line

Keep payroll where it is. Each period, export the register from Gusto, ADP or Paychex, match it to approved timesheets, distribute the gross pay by hours, decide where employer costs go, and post one journal entry to QuickBooks Online that ties back to the register. The export is the easy part. The matching and the tie-out are what an auditor tests.

Try it with your next payroll. Start a 14-day free trial, connect QuickBooks Online and import the register from Gusto, ADP or Paychex. Step-by-step instructions are in the Help Center article Importing payroll from Gusto, ADP or Paychex.

Running Labor Distribution with Gusto, ADP or Paychex: What to Export and How to Map It