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This question is about employer.
How to calculate labor cost?
To calculate labor cost, you must add gross wages to all other expenses, while factoring in actual hours worked. The first step in calculating labor costs is to determine gross wages. This can be done through a simple formula of multiplying annual working hours by gross hourly wage.
You would want to calculate how much someone should work, and not how much they fully work. For example, say someone works 52 weeks, 40 hours a week at $15 per hour. That is 2080 working hours times $15 which is $31,200.
After you find gross wages, you need to determine actual working hours. While someone may be put on schedule to work those 2080 hours, did they? If they have PTO, that should be factored in. So in this scenario, if someone had 10 days of PTO, that's equal to 10*8 or 80 hours, so that should leave 2000 actual working hours.
The third step is to factor in all other expenses, such as anything that the company pays so that a person is able to successfully complete their job. This includes benefits such as insurance, retirement plans, education and training, supplies, and even meals at work. Payroll taxes and supplemental pay and bonuses must also be included.
Payroll taxes include FICA taxes, FUTA taxes, and state unemployment taxes, which vary from state to state. Once you have calculated all these taxes you can calculate labor cost by using a simple formula of total annual labor cost equaling gross wage and other annual costs.
When you calculate labor costs, you see that someone's hourly wage is much lower than the actual cost of hiring that employee. This is an important thing to know when you are budgeting for your business.
There are many programs online that help you to calculate labor costs in your specific state, using the specific tax rates of your state. These can be extremely beneficial for you as they help to include all other expenses that need to be factored in when calculating labor costs.
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