Indirect labor costs
| Indirect labor costs |
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| See also |
Indirect labor costs include various forms of payroll taxes, insurance and a wide range of additional employee benefits[1]They cannot be identified with the individual cost centre and is incurred for those employees who are not engaged in the manufacturing process but only assist[2].
Types of indirect labor costs
Indirect labor expense involves[3]:
- forms of payroll taxes
- insurance
- additional employee benefits
Employer's participation based on the payroll: insurance against unemployment, social insurance, contractor liability insurance and property damage as well as employee compensation insurance.
Significance
These costs are significant, often from 35 to 55 percent of the supplements to direct wage costs. The most important in the project is to consider the presence of indirect labor costs - it is less important when and how they arise[4]. Companies can distinguish direct and indirect labor costs so that they can measure the effectiveness or efficiency of their employees, which entails studying how long an employee lasts to produce one unit. If productivity starts to get below the target levels, action can be taken to improve performance[5].
Estimation
For estimation purposes, the total workload can be calculated in one operation using hourly labor costs are often calculated separately when labor prices are estimated. A common rule is to add a percentage of allowance to the total intermediate direct operation to the other, it may be advantageous to calculate indirect costs run at the same time the direct labor cost is achieved for the service[6].
Direct labor costs
Direct labor costs are wages paid to employees who produce products physically. In other words, these costs are the costs paid to employees who make the products that they produce sell[7]. There is a subtle difference between direct labor and direct labor costs. Work refers to the actual work done by employees to produce products. Labor costs refer to the amount of money that the employer pays employees for doing the job[8].
Footnotes
References
- Chiang B.,(2013), Indirect Labor Costs and Implications for Overhead Allocation, "Accounting&Taxation". Vol.5, nr. 1
- Finney I. M., Fyock C., Robbins P., Thompson L.,(2013)The Truth About Managing Effectively,FT Press, Jun 25, 2013
- Gildersleeve R.(1999) Winning Business: How to Use Financial Analysis and Benchmarks to Outscore Your Competition,Gulf Professional Publishing, 1999
- Holloway D. M.,(2016), Spend Analysis and Specification Development Using Failure Interpretation,CRC Press, Apr 19, 2016
- Labor Costs Interpretive,(2015), Labor Costs Interpretive Guidance, California Department of Transportation
- Marvel M. R.,(2012) Encyclopedia of New Venture Management, SAGE Publications, May 1, 2012
- Sears S. K., Clough R. H., Glenn A. Sears G. A,(2008), (Construction Project Management: A Practical Guide to Field Construction Management, John Wiley & Sons, Apr 25, 2008
Author: Agnieszka Katarzyna Sikora
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