So, how do you calculate the labor cost for Maria? #1.
She is an hourly, non-exempt employee, who works full-time in a company in California with more than 26 employees. We’ll use a hypothetical employee, Maria, as an example. Let’s break down each of these calculations into steps. The simple labor cost per hour formula looks like this: Labor cost per hour = (gross pay + all annual costs) / actual worked hours per year In order to calculate the labor cost of an employee per hour, you need to go through a simple process of factoring in all expenses related to their employment. This is called labor cost percentage and is the key to solid business management and growth. You have to keep tabs on your labor expenses and to constantly compare them to your revenue, so that employee costs don’t harm your bottom-line. Labor cost includes gross wages for an employee, as well as additional payments on their behalf, like Social Security and Medicare taxes, as well as benefits. The expenses that you pay for each employee equal your labor cost for that particular staff member. How is labor cost calculated, then? Read on to get a clear overview and make the right calculations for your business.
Only after factoring them in you can get the actual labor expenses for your company. It spans a number of other expenses that you need to account for. Labor cost does not only mean the hourly rate that you pay a member of your staff. That’s why it’s essential to understand what labor costs are and how they are determined. Whether you’re running a restaurant, a construction company, or another small business with employees, labor costs are some of the biggest expenses you'll need to cover.
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