Business calculators

Labor Cost Calculator

Looking to calculate your labor costs? Look no further than the labor cost calculator! This easy-to-use tool will help you quickly and accurately calculate your labor costs, so you can make informed business decisions.

Understanding Labor Cost

What counts as labor costs?

Labor costs include the sum of employee wages (or salary) plus related expenses for taxes and employee benefits. That includes:

  • Overtime
  • Bonuses
  • Pension or retirement contributions
  • Health care
  • Social security
  • Sick days, vacation days, personal days
  • Workers’ compensation
  • Insurance
  • Federal and state unemployment taxes
  • Payroll taxes (Social security and medicare)
  • Supplies
  • Training costs
  • Tuition reimbursement 

Understanding the total cost of labor is crucial, especially when pricing services or products. It’s also an important figure used to project future profits and understand your business’s hiring needs. 

Your labor cost percentage can also act as a guide, telling you when teams are operating efficiently and when they’re struggling. Monitoring your labor costs month after month helps you to stay within a healthy range. 

Direct vs. Indirect Labor Costs

Direct labor cost includes all labor used to produce a good or render a service directly. Workers on an assembly line all provide direct labor. Indirect costs include all supportive labor costs that indirectly produce a product or service, sometimes called overhead costs. Workers who clean the assembly line, service the equipment or supervise the assembly line all provide indirect labor. 

Variable vs. Fixed Labor Costs

Variable labor costs increase and decrease based on production levels. This can include wages paid to seasonal workers or overtime wages. When production levels are higher, so are variable labor costs. Fixed labor costs are constant over long periods of time. A restaurant manager’s salary is an example of a fixed labor cost. 

What is the labor cost formula?

The labor cost ratio is simple division. You just need to divide the total labor cost by total revenue. 

Labor cost percentage = Total labor cost / Total revenue

But there are several steps you must complete before getting the numbers to plug into the formula, such as calculating gross pay. We cover those steps below. 

Need payroll? You’re in the right place.

Choose from a variety of plans and add-ons. You won’t pay a cent until you’re ready to run payroll.

Common labor cost questions

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