Cost Centres

Meaning & Definition

A cost centre can be defined as a department or group in an organisation that does not directly generate revenue, but where costs associated with the operation of that department or group are tracked and managed. Cost centres are used in both Human Resources (HR) and Finance to help allocate costs, such as wages, benefits, training, and overheads, by function, which supports budgeting and control over that function.

Important aspects of Cost Centres

• Provides accurate tracking of human resources and payroll expenses.
• Budgeting, forecasting and cost control.
• Improved visibility into financials across departments.
• Provides management with the ability to evaluate the efficiency of spending.
• Allows for internal reporting and helps management make an informed decision.

Governance & Policy Alignment

• There is no specific statutory compliance associated with the term.
• Internal financial and accounting policies define the cost centres.
• HR and payroll expenses must be accurately assigned to legally approved cost centres.
• Regular evaluations create and sustain accurate reporting and audit readiness.