Chirayuthchai TraisaengsatheanStrategic Finance for Property Development

Practical guide to accounting for in-house labour costs in project development

Three questions to decide between WIP and expense, when WIP starts and stops, job groups, and the legal gate for foreign employees

Key takeaways

Labour cost can go to WIP when it passes 3 questions: it is directly for the project, it falls within the development stage, and there is evidence that measures the time. If the answer to any one is no, that portion is a period expense. For foreign employees, the legal gate must be passed before the accounting is considered.

3 questions to test each person monthly

#QuestionsYesNo
1Is the work done directly for a named project?Site engineer, site QCAccounting, HR, sales
2Is it within the development stage?After project approval and before the project is ready for sale or useAfter handover
3Is there evidence?Project code and timesheetLump-sum estimate

Projects built for sale follow TAS 2 (conversion costs). Buildings held for own use follow TAS 16.

When WIP starts and stops

StageAccounting treatmentExample work
FeasibilityPeriod expenseMarket study, site selection, project not yet approved
Design and permittingWIPBIM design, building permit, EIA
ConstructionWIPConstruction supervision
Waiting for sale or transferPeriod expenseCaring for the completed building, security guards, cleaners
Handover and warrantyPeriod expenseFixing defects, after-sales service

Project approval = WIP starts; ready for sale = WIP stops

Within the WIP stage but still a period expense

  • Unplanned, abnormally long work stoppages
  • Idle time, rework, repeated work
  • General office administration, even during construction

When the project plan changes

  • Cancelled: transfer accumulated WIP to expense immediately
  • Postponed: stop recording WIP until work resumes
  • Phased: stop WIP as each phase is completed

The accounting department sets the WIP start and stop dates in writing for every project, based on the approval resolution and the certificate of construction completion.

Job groups and recording

Can go to WIPConditional WIPAlways a period expense
Construction and Technical
MEP
Architecture and interior design
BIM
QC
QS and surveyor
Site safety
Site labour
Security guards, only at sites where work is under way
Store, only site material stores
Purchasing, only purchases for the project
Project management, only time spent controlling the project
Staff on multiple projects: allocate by timesheet
Sales, marketing, after-sales
Accounting, finance, central administration
HR, IT, general administration
Legal and corporate support
Reception, housekeeping, operations
Care of the completed building
Feasibility team

A department code does not automatically qualify a cost for WIP. Every person's salary must pass the 3 questions each month.

Which compensation can go to WIP

Can go to WIP, in proportion to project time

  • Salaries and wages, including overtime, for site work
  • Benefits paid directly to project staff
  • Employer's social security contributions
  • Bonuses allocated by actual time worked on the project in that year, not at a fixed rate

Not in WIP

  • Sales staff commission: not a construction cost; consider it as a cost of obtaining a contract under TFRS 15
  • Visa and work permit fees
  • Training, uniforms, meals
  • Penalties and surcharges, which are not project costs and are not tax-deductible

4 mistakes that overstate WIP

MistakeWhat we findCorrect treatment
Lump-sum capitalisationA fixed percentage every month, or a single bonus entry at year-endAllocate monthly by timesheet or actual project code
Not separating staff who work on several projectsBooked to a single project, or office work includedAllocate by actual time; office work is an expense
Capitalising wasted timeIdle time, rework and long stoppages treated as costSeparate the time and book it as a period expense
WIP not adjusted when the plan changesProject cancelled or postponed but WIP remainsWrite off to expense and test NRV

Foreign employees: the legal gate comes first

  1. Gate 1: Can a foreign national lawfully do this work? If not, stop the work and fix it immediately. Record the cost as a period expense.
  2. Gate 2: Does the actual work match the work permit? If not, correct the permit first. Record the cost as a period expense in the meantime.
  3. Gate 3: Does it pass the 3 accounting questions? The criteria are the same as for Thai employees.

Why check the law first: labour cost booked to a project is evidence that the person did that work. If it conflicts with the permit, the accounting entry becomes evidence of the breach.

Permitted, when the permit matches the actual workConditional: a professional licence is requiredProhibited
Project Director or Project Manager
Technical specialist or consultant
Quantity Surveyor
BIM or Design Coordinator
Specialist QA/QC expert
Engineers: under professional law and relevant conventions
Architects: special associate licence, or ASEAN MRA
Skilled trades and labourers: specify the employer and type of work
Legal work
Secretarial and project administrative work that falls within the restrictions
Drivers, except forklift operators
Security guards, who must comply with the security business law

Based on the Emergency Decree on Managing the Work of Foreigners 2017 and the Ministry of Labour notification on work prohibited to foreigners 2020, which lists 40 jobs. Details may change; check the latest notification and have a legal adviser review each individual's permit before hiring.

Documents and controls before posting to WIP

#Document or controlResponsible partyFrequency
1Project approval letter stating the WIP start and stop datesAccounting, executivesEvery project
2Project code for every employee in payrollHROn hiring or transfer
3Timesheets for staff working on several projectsProject headMonthly
4Copy of the work permit matching the actual workHROn hiring and renewal
5Review WIP entries against the 3 questionsAccountMonthly
6Test that WIP does not exceed NRVAccountQuarterly

If a month's documents are incomplete, first record that labour cost as a period expense, then transfer it to WIP once the evidence is complete.