Dispelling the Myths About Unapplied Labor: Part 28 min read

How To Find And Fix Unapplied Labor Mistakes

There are five ways a service manager can find payroll mistakes.

1. Review technician time tickets for higher (or lower) than unusual dollar amounts
2. Cross-checking technician time tickets against jobs on repair order
3. Review the work-in-process report for higher (or lower) than unusual dollar amounts
4. Review the financial statement for higher (or lower) than unusual dollar amounts
5. The technician points out that they were paid incorrectly

It is important to review technician time tickets before the repair order is closed because if there is a mistake, it is easier to fix when the tickets are still open. It is also important to look at the work-in-process report weekly to make sure that everything looks right. If there is something off, it will be easier to spot and quick to fix.

To make payroll adjustments in accounting depends on the technician’s pay type; flat-rate or hourly. If the repair order is closed and updated into accounting, then it’s better to ask the office manager to help with the accounting adjustments.

How to fix unapplied labor mistakes

Flat-rate technicians: To correct mistakes made on a flat-rate technician’s payroll, the work-in-process needs to be adjusted to reflect the plus or minus wage discrepancy and cost of sales account to reflect the billable hours.

Hourly technicians: The plus or minus wage discrepancy is posted to the unapplied labor expense account to correct an hourly technician’s payroll mistakes.

How can we prevent unapplied labor mistakes?

Measuring this metric is critical since any labor cost incurred in your unapplied labor account reduces your gross profit. Even if you have flat-rate technicians, every service department has unapplied labor. However, far too often, the unapplied labor account shows no activity. The problem with this scenario is that you have unapplied labor building up in your system, which is slowly eating away at your profits that you can’t measure. And what you can’t see, you can’t measure, so service managers need to figure out why the unapplied account is zero on the financial statement.

If you want to get a handle on your unapplied labor, there are a few things you can do to find mistakes.

1. Review technician time tickets before closing the repair order. You are looking for mistakes such as the correct technician being paid for jobs, plus verifying it’s at the labor rate and the hours worked are correct. The most common mistake is misplaced decimal points, 50.0 hours instead of 0.5 hours.
2. Review the work-in-process report before and after payroll. You are looking for unusually high debits or credits and older repair orders that still appear on the report.
3. Cross-check the work-in-process report with the unapplied labor account for posting errors, and match up the dollar amounts of jobs on the repair orders.
4. Ask if the accounting department zeros out the account each month. If the office manager is adjusting the unapplied labor account, where are they moving it? To the payroll expense account or to the repair order labor cost account?

The important part is knowing where mistakes are coming from and understanding how you can control or minimize that unapplied labor expense. Unapplied labor can significantly impact your dealership’s bottom line. But the great news is that you can improve your dealership’s overall profitability by tracking this metric and taking steps to reduce it.

How can I manage unapplied labor in my service department?

Technicians on a guarantee and unapplied labor

If your service department pays technicians a guarantee and you want to get a handle on your unapplied labor, there are a few things you can do:

1. Keep track of your technicians’ time. Make sure you know how much time each technician is spending on each job. This will help you catch any issues with unapplied labor early on.
2. Train your technicians on proper time management. This will help them to be more efficient, increase hours worked, and avoid paying wages as unapplied labor.
3. Tack a step back and study your shop’s workflow. Look at your shop and see if it is ergonomically laid out and if it slows down a technician’s workflow. For instance, do employees need to walk further than needed to complete repairs? Do they need to wait longer than necessary for a hoist, specialty tool, or spare parts? Are customers’ labor sales being affected? Can you think of a way to improve the service department’s workflow and increase the productivity hours worked?

As you can see, there’s more than meets the eye when it comes to reducing unapplied labor. It’s not just about the hours worked but also how efficiently employees use their time while working on customers’ cars. In order for them to perform at their best and take care of customers’ cars properly. You also need to set up the service department workflow to run efficiently, so they can be better armed to repair cars, produce more hours worked, and increase customer sales.

Hourly technicians and unapplied labor

To control employee payroll expenses, management needs to track unapplied labor wages and hours worked. This means making sure your hourly apprentices and techs are clocking in and out of jobs correctly. This may seem like a no-brainer, but it’s important to ensure your hourly staff follows the procedure. Review timecards each week to ensure you are only capturing wages for hours worked.

1. They started working on the repair order before entering it into the system
2. They forgot to clock out for lunch or breaks
3. They worked on the repair order after hours and didn’t clock out properly

Remember, minutes can turn into an hour or more by the end of the work week. Multiply that by the number of hourly techs on staff, and you can imagine what the unapplied labor account will look like at the end of the year, especially if customer sales are down. Make sure you are only paying techs for their hours worked to prevent an excess of unapplied labor on your financial statement.

Unapplied labor conclusion

Unapplied labor is when the service department pays an apprentice or technician per hour based on their shift worked, not by repairs completed. The wage is not considered as billable hours, nor is it recovered on a repair order. The unapplied labor is expensed on the financial statement as unapplied labor or hourly staff payroll. A flat-rate technicians time is billed to a work order and offset to the work-in-process account (WIP).

Paying techs a flat-rate can increase productivity and sales. Additionally, it’s also easier to track metrics like shop efficiency, labor cost vs sales, and gross labor profit.

Unapplied labor is one of the most underrated and often overlooked metrics in a service department. Yet, it can have a huge impact on your bottom line. In fact, even a small increase in unapplied wages can cost you in gross profits. Tracking unapplied labor is problematic because it does not appear on customer billing, jobs, or labor sales. Managers should reconcile the unapplied labor account and measure this metric each week or twice a month to help you identify trends and make adjustments as needed.

If you want to get a handle on your unapplied labor wages, there are a few things you can do to find mistakes. Review technician time tickets before closing the customer billing. You are looking for mistakes such as the correct technician being paid for the jobs, plus verifying the correct labor rate and time. The most common mistake is misplaced decimal points. Review the work-in-process report before and after payroll, and look for unusually high debits or credits and older repair orders that still appear on the report. Cross-check the work-in-process report with the unapplied labor account for billing or posting errors. You’re looking for matching wages or repair order job lines. Ask the accounting department if they make adjustments to the unapplied labor account each month.

Now that you know some tips for succeeding as an automotive service manager, put them into practice at your dealership! By following these tips, you can better manage unapplied labor in your service department and avoid any potential problems down the line. Keep up the good work, and don’t forget to keep learning and growing in your role. Before you know it, you will be an expert in the automotive industry!

Next Steps

You want to become a service manager but don’t know where to start. There are a lot of different courses and training programs available, but it’s hard to know which one is the right fit for you.

The Automotive Service Manager Master Course is the perfect place to start. This online training course was designed by experts in the automotive industry and provides everything you need to know to become a successful service manager. Plus, our course is affordable and can be completed at your own pace. Enroll today and get started on your new career!

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Looking for more tips on how to succeed as a new dealership manager? Check out our articles for more helpful tips, or enroll in one of our online automotive management courses!