Productive Labour, Cost of Sales Labour & Sub-Contractors: Codes 6000, 6001 & 6002

Not all staff costs sit in Overheads — where labour is directly tied to producing what the business sells, Sage classes it as a Direct Expense instead, sitting alongside materials in the cost of sales.

The codes, and what each one holds

Code 6000 — Productive Labour records the wages of employees directly engaged in producing goods or delivering the service being sold, such as factory or workshop staff.

Code 6001 — Cost of Sales Labour covers a broader or alternative labour cost directly attributable to sales, depending on how a business structures its payroll codes.

Code 6002 — Sub-Contractors records payments to self-employed contractors or subcontracted businesses brought in to help deliver the work being sold, rather than employees on the payroll. All three are Direct Expenses codes and normally carry a debit balance.

Real-world examples across industries

Construction

A contractor pays £12,000 in wages to its own site labourers this month — a debit of £12,000 to 6000 (Productive Labour), no VAT, since payroll is outside its scope. Separately, a subcontracted electrician invoices £2,000 of labour plus £400 VAT (£2,400 gross). Because payments to construction subcontractors usually fall under the Construction Industry Scheme (CIS), a 20% deduction is withheld from the labour element before payment — £400 here — so only £2,000 is actually paid out. The entry is a debit of £2,000 to 6002, a debit of £400 to 2201, a credit of £400 to a CIS deductions account (not part of Sage's default code range, so most construction firms add their own), and a credit of £2,000 to 2100.

Creative or digital agency

An agency brings in a freelance developer to cover a busy sprint — no CIS here, since that scheme is construction-specific. A £1,200 invoice from a VAT-registered freelancer is a debit of £1,000 to 6002, a debit of £200 to 2201, and a credit of £1,200 to 2100. Plenty of freelancers in this space sit below the VAT registration threshold, in which case the full £1,200 goes to 6002 with nothing posted to 2201 at all.

Manufacturing

A factory floor might use 6000 for its permanent, hourly-paid production staff and 6001 (Cost of Sales Labour) for temporary agency workers brought in to cover a rush order — keeping the two separate shows how much of production cost is core headcount versus flexible labour that scales with demand. £3,600 of agency staff for the month (£3,000 net, £600 VAT — agency invoices are normally VAT-bearing, unlike payroll) is a debit of £3,000 to 6001, a debit of £600 to 2201, and a credit of £3,600 to 2100.

Why this matters day to day

Classing direct labour as a cost of sale rather than an overhead means gross profit reflects the true cost of delivering what's being sold, which is essential for accurate job costing and pricing. Keeping subcontractors separate from employed labour also matters for CIS (Construction Industry Scheme) reporting in the building trade, and more generally for understanding how much of production capacity is being outsourced versus done in-house.