How Labor Cost Rates Are Calculated

Cost rates determine the raw cost for expenditure items, unless you import the raw cost for your expenditures.

Where Do Labor Cost Rates Come From

If cost rate overrides exist for a person, job, or expenditure type at the project or task level, then the override rate applies for cost rate processing for each transaction.

Otherwise, the labor cost rule and rate schedules in the following order determine costing rules for transactions.

1. If a labor costing override exists for the employee on the expenditure item, then the override determines the cost rate. The effective dates for the labor costing overrides determines whether an override is active on the expenditure item. A labor costing override can have either an overriding cost rate or an overriding rate schedule.

   Labor expenditure items always have a unit of measure of Hours.

   For labor transactions, the application searches for a labor costing override in the following order.

   1. Person, job, and organization combination

   2. Person and job combination

   3. Person

2. If no override exists, the application uses organization costing rules to determine the nonlabor cost rate schedule. Costing rules can be associated with an organization or with a combination of organization and business unit. If you use hierarchies, you can associate costing rules with organizations at any level of the expenditure organization hierarchy.

   The application searches for a costing rule in the following order and stops when it finds a valid costing rule that includes the transaction date.

   1. Project expenditure organization and business unit

   2. Project expenditure organization

   3. Parent organization and business unit

   4. Parent organization

   The application continues up the hierarchy looking at each parent organization and business unit. If an organization isn't found after traversing the hierarchy, the costing rule associated with the business unit is used.

Project Financial Management applications apply the costing rule to determine the cost rate for the expenditure item. You can associate a cost rate schedule with an organization labor costing rule to determine the cost rate.