Total labor cost is the aggregate cost of the hours worked by all employees, plus all related payroll taxes and benefits. This amount is used in the budgeting of financial results for a business.
Total labor cost is comprised of a number of line items, which include the following:
- Direct labor cost. This is the wages paid to production employees, including their overtime hours worked.
- Indirect labor cost. This is the wages and salaries paid to all other employees, including any overtime hours worked.
- Payroll taxes. This is the employer-paid portion of payroll taxes, which includes Medicare, social security, and unemployment taxes.
- Benefits. This is all other expenses incurred on behalf of employees, such as the employer-paid portions of medical insurance, life insurance, and dental insurance.