Indirect labor

Indirect labor
See also
Conversion cost Direct expense Indirect labor costs Cost Costs and expenses Cost variance Project budget Cost structure Cost classification

Indirect labour is a force that is not directly related to production activity and its task is to support it. Among the indirect workforce there are salaries for employees, inspectors or guardians. Indirect labour is one of the elements of the overheads, which also includes indirect expenses and indirect materials.

International Capital Market Association defines overhead as "an aggregate of indirect materials, indirect wages and indirect expenses".

It is also important that the work indirectly cannot be directly assigned to a specific product, process or activity. It applies to all employees who are not involved in the process of processing raw materials into the final, finished product .

Difference between direct labor and indirect labor

The difference between indirect work and direct work is that direct work can be assigned to a specific task, machine, worker or product. By contrast, indirect labour is expressed as an element of overheads which have to be included in the cost of production .

Direct labor payment methods

We can distinguish three main methods of direct labour remuneration:

1. time rate, also called basic salary, is the type of salary an employee receives for the time he has spent at work. Every overtime, e.g. after working hours or on Saturdays or public holidays, is additionally remunerated, e.g. double counting, etc.;
2. piecework rate, which means the remuneration for the amount of e.g. finished finished products, then the employee receives a sum for the amount of products made on a given day, not for the amount of hours that he or she devoted to it;
3. bonus system is an additional remuneration (in addition to the basic salary) for the performance bonus faster than expected, the prize is then awarded as a percentage of the money saved by the faster performance of the task.

References

• Anbarasu J. (2008), Overhead
• Chiang B. (2013), Indirect Labor Costs and Implications for Overhead Allocation, “Accounting&Taxation”. Vol.5, nr. 1
• Cox D. (2016),Management Accounting: Costing Tutorial, Osborne Books
• Elementary Cost Accounting (2019),Basic Cost Concepts
• Jain P., Bhati A. (2015), Cost Accounting and Cost Control System in Textile Industry in India, Department of Accountancy and Business Statistics, Jaipur
• Labor Costs Interpretive (2015), Labor Costs Interpretive Guidance, California Department of Transportation
• Labour Costs (2016),Labour Costs and Methods of Control
• Palazzi P., Piacentini P. (1986), Direct and Indirect Labor and Demand for Workers and Working Hours, "Rivista Internazionale di Scienze Economiche Commerciali", vol. 33, n. 12
• Walther L.M., Skousen J.C. (2009),Managerial and Cost Accounting

Author: Julia Kręcioch