Hi Kim,
This is a very common scenario for project accounting.
A simple way to achieve your requirement is as follows
1. Create this contractor to look like an employee in workers.
2. Create a labor category "Contractor hours"
3. Setup worker for project labor transactions, and define "Contractor hours" as the default timesheet category
4. Also, turn on worker/category validation - that way you can ensure that the contractor is only able to charge "Contractor hours", and not any of the regular employee labor hours. Conversely, ensure that regular employees are not allowed to charge "Contractor hours"
5. In the ledger posting setup, I would use "Contractor Expense" in the project cost side, rather than Payroll Allocation. I'd define the payroll allocation account to an "Accrued contractor payables" account for the category "Contractor hours". This will ensure that the credit side of any labor entry with "Contractor Hours" will hit "Accrued contractor payables".
6. Over time, you'll have Accrued AP monies accumulated in "Accrued contractor payables"
7. Periodically, when the contractor submits their invoice, you can book AP offsetting "Accrued Contractor payables". Any discrepancies can be managed there aswell
This way you should be able to account for hours and amounts separately for employees and contractors. Also, Contractor Expense will show project costs incurred, and uncleared "Accrued contractor payables" will show labor which hasn't been invoiced yet.
It sounds like the contractor at your business/customer is exposed to a labor transaction (time sheet or imported hours journal), even though he/she is not an employee. Maybe I've over simplified the requirement you have. If so, please let me know.
Thanks
Akshay
