This article by BuildYourNumbers.com will teach you more about what you need to know about labor burden and its effect on profit.
What exactly is Labor Burden? How Does it Impact My Business?
“Do my employees really cost this much?”
While you probably have a good handle on your employees’ hourly wage or salary costs, and know that payroll taxes take a big bite out of your checking account every pay period, have you taken a close look recently at the variety of additional costs that accompany each employee as they begin work on the job you hired them to perform?
Here are just some of the extra costs you’ll need to consider
- Paid holidays, vacations, sick time, personal time, breaks, etc.
- Health, dental and workers’ compensation insurance
- Retirement or union benefits
- Protective gear or uniforms
- Safety training or professional development
- Equipment or vehicle usage
- Shop, office, or floor space costs
When you’re ready to dig in to these critical employee-related costs, you’ll find it helpful to get familiar with some of the related terms.
Quick Labor-Burden-related definitions:
- Labor Burden:
The costs – in addition to gross compensation – you incur in order for an employee to perform the work that you hired them to do.
- Labor Burden Cost per Production Hour (or “Fully-burdened Cost”):
(Gross payroll cost + Labor Burden Cost) ÷ the number of actual production hours worked.
- Labor Burden Rate per Production Hour (%):
The additional total labor burden cost, expressed as a percent, above and beyond regular hourly payroll. I.e., Labor Burden Cost per hour ÷ hourly payroll cost.
What’s your labor burden rate?
Keeping employee-related costs and employee billing on an even keel can help to create financial success – while failing to do so can ultimately spell failure. When business owners decide that it’s time to step up to the plate to look at their labor burden numbers, many are taken aback to find that their workers may be costing 50%, 90%, or even 150% more than their gross hourly labor rate!
To determine your workers’ labor burden rates, you’ll need to compute each employee’s fully burdened labor cost and then divide it by the number of hours that employee actually works on projects. An Example…
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