What are Pay Rates, Cost Rates, and Billable Rates in QuickBooks Online?

Pay rates, cost rates, and billable rates are essential components of financial management in QuickBooks Online. They help businesses process payroll accurately, allocate labor costs to projects, invoice clients effectively, and analyze profitability. In this article, we will dive deep into what pay rates, cost rates, and billable rates are, when they are used, and how to set them up in QuickBooks Online.

Pay Rates

Pay rates in QuickBooks Online refer to the amount of money that a business pays to its employees for their work. This is typically an hourly rate, but it can also be a fixed salary. Pay rates are essential for calculating employee wages, payroll taxes, and other financial obligations. QuickBooks Online allows businesses to customize pay rates for different employees and payroll items.

Pay rates are used when processing payroll for your employees. These rates determine how much each employee is paid based on the hours worked or the agreed-upon salary.

Pay rates are also used for job costing, which helps businesses allocate labor costs to specific projects or jobs.

Setting Up Pay Rates in QuickBooks Online:

Select Payroll in the left navigation menu and then click on the Employees dropdown. Next, choose the employee for whom you want to set a pay rate, and then select the Pay types section, as shown below.

Setting up pay rates in QuickBooks Online

Enter the hourly or salary rate for the employee, and then save your changes.

Setting up pay rates in QuickBooks Online

Cost Rates

Cost rates in QuickBooks Online refer to the amount that it costs a business to employ someone, beyond just their pay rate. This includes additional expenses like employer taxes, benefits, and other labor-related costs. Cost rates are essential for understanding the true cost of an employee to the business.

Cost rates are used in job costing and project management to calculate the total cost of labor for a specific job or project. This helps businesses determine if a project is profitable.

Select the Projects tab in the left navigation menu, and then click the Employee hourly rate button. This will bring up the screen where you can set up cost rates for an employee.

Click the Add button next to the employee, enter the cost rate and then save your changes.

Billable Rates or Billable Expenses

Billable rates or billable expenses in QuickBooks Online refer to the rate at which a business charges its clients or customers for the services provided by employees. Billable rates are crucial for accurate invoicing and profitability analysis. It’s important to set the billable rate higher than the employee’s pay rate to cover not only the cost of labor but also generate a profit.

Billable rates are used when invoicing clients for services performed by your employees. These rates determine how much you bill your clients for the work completed. They are also used in project management and job costing to calculate the revenue generated by each project or job.

Setting Up Billable Rates in QuickBooks Online

Go to the Expenses tab in the left navigation menu. Select the expense transaction you wish to mark as billable, and then under the Category details or Item details section, mark the box next to billable and then choose the customer to whom the expense should be billed.

Setting up billable rates in QuickBooks Online

Learn more about how to make expenses billable in QuickBooks Online.

Wrap Up

By understanding and managing pay rates, cost rates, and billable rates effectively in QuickBooks Online, businesses can make informed financial decisions and ensure their long-term success.