![]() After we factor in all these expenditures, we get the actual labor cost per hour for a particular employee. We must consider all related expenses the company pays for Marco so that he can work that comes on top of his gross pay. In the third step of our calculation, we will add all the other expenses that we should include into our total labor cost. So, now we can calculate that the actual number of Marco's working hours last year was 1960.Īctual working hours= annual working hours - hours not working. Fifteen days of paid time off is equal to 120 hours. So, we need to modify our calculation according to the new facts. Determine the Actual Working Hoursīut did Marco clock in all the 2080 working hours last year? Every employee needs a break, and we can see that Marco had 15 days of paid time off the previous year. When we multiply the annual number of hours Marco is supposed to work with a gross hourly rate of $20, we can set his gross yearly wage as $42.600. In a year, Marco is supposed to work 52 weeks, 40 hours each week, which comes to 2080 working hours. Gross wage = annual working hours x gross hourly wage Start calculating actual labor costs by working out gross wages. Then, you'll get closer to figuring out how to calculate labor costs. Think about your company's expenses for everything we've mentioned above. Equipment and supplies (protective gear, uniform, cell phone, desks, chairs…).These costs may be, but are not limited to: It includes their wages and all the additional payments made on their behalf. The labor cost for the particular employee equals all the expenses related to them. Only after factoring in all these additional expenses can you calculate the actual labor costs for your company. It includes many other expenses that your company covers. If you're wondering how much labor costs your company, keep in mind that labor cost isn't only the hourly rate you pay your employee. However, if you don't track and monitor these costs regularly, they can quickly escalate and harm your bottom line.īut how to calculate labor costs? We've gathered all the info in this step-by-step guide so that you can make the proper calculations for your business and keep track of important metrics. ![]() It would be best if you compensated your employees adequately for their work. No matter what kind of business you're running, the odds are high that your labor costs make up the most significant part of your operating expenses.
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