Now to most accountants that question would seem plain daft, if I’m honest. The answer is staff are an overhead becasue that’s what the rules say and accountants abide by the rules.
Which means that accountants are all to often the ones who are plain daft because inside the question is the very obvious understanding that in a service activity (especially) people are the key to all value generation. And they’re not an overhead as such – they are the profit centre.
But that’s not the way that accounting, based on the prescription of capitalism wishes to see the issue. Accounting was organised on the logic that the focus of attention was the generation of funds for the owners – the capitalists. Anything that depleted the funds left to the owners was, therefore, a cost unless potentially resaleable when it became an asset, even if the value attributed was very often somewhat arbitrary.
Are staff really treated as an overhead in UK accounting?
I know that some staff costs are overheads: holiday pay, perhaps the costs of back office functions. But basic staff costs an overhead?
Umm, they usually appear in the accounts as staff or labour costs, don\’t they?
There are three possibilities here:
1) I\’m wrong: if so, please do correct me.
2) Ritchie is wrong in which case please do let me know.
3) Ritchie has got very confused in his accounting terminology (not a good thing in one of the country\’s leading tax experts) and is confusing overheads with costs. An overhead, at least as I understand it, is a non variable cost. One that just has to be paid in order for the company to stay in business, whatever the level of orders or work going on. Some staff costs are just this: but the vast majority of staff costs are not an overhead. They are variable costs, ones which change dependent upon the amount of work coming through the company.
They\’re still costs of course: and have to be accounted for as such. But they\’re not overheads.