Managing Contractor Disbursements in XPM

There are two options for managing subcontractors in Xero Practice Manager (XPM).  The first option is to add the contractor as a staff member in XPM and load their base rate as the amount that it costs you for their time. The difference between a subcontractor under this method and an employee is that the employee is paid wages which are treated through the payroll system, whereas contractors send you an invoice for their time.  Under this scenario, you will treat the contractor just like an employee inside XPM but will have a different billing relationship with them from a Xero perspective.

The other way to manage subcontractors in XPM is for when you are outsourcing the work. The subcontractor is paid a fixed fee to complete a job rather than paid an hourly rate for the work they do.  Under this scenario the subcontractor does not complete timesheets in XPM, instead they send an invoice for the work once completed.   This invoice is loaded on to the job by adding a cost. The cost loaded by going into the Job > Cost tab > Enter a cost (identify the cost type eg. “Outsource Fee”) > enter the cost amount > save.

The common question here is what margin do we put on the subcontractor?  Our recommendation is to put the subcontractor fee at a 0% mark up.  The reason for this is because when the job is invoiced we want to assign any write ups through to our staff.

Let’s look at an example:

We have an agreed client fee of $3,000 for a set of annual accounts and the subcontractor charges $250 to complete the work.  If we put this in at a 0% mark up we will have larger budget remaining of $2,750 which is for our job manager to review and finalise the work. What we would expect here is that there is a write up on this job for using this subcontractor and this write up is then passed on to the job manager who worked on the job.  This encourages our team to use the outsourced office as they assist in making greater write ups on their jobs.

The alternative scenario is that we put a mark up on the subcontractor of 3 or 4 times to reflect the profit we intend to make on outsourcing.  In the scenario where we use a 300% mark up, we would be loading in the cost item at a $250 unit cost and entering $750 as the unit price. This would give the job manager a remaining budget of only $2,250 on the job. When job write ups/ write offs are calculated, the invoiced value is first assigned to the unit price of costs on the job, and then to the billable value of timesheets. The downside of this scenario is we are applying a fixed mark up at all times to the subcontractors which impacts our staffs net write ups. 

Our preference is to enter the subcontractor’s fees without a mark up. Our targets for our team would shift accordingly to reflect the greater margins available on the jobs.  Under this scenario we would expect to see larger write ups in the practice which would highlight the benefit of using an outsourced office to complete the accounting work.

To recap, there are two ways of managing subcontractors in XPM. The first is we treat them as an employee where we load a base rate and billable rate in the system and the contractor completes timesheets in XPM.  The other option is where we pay a fixed fee to the outsourced office for them to complete a job. Under this scenario our recommendation is to enter that cost into XPM at a 0% mark up.