Many companies underestimate direct labour cost. To make sure you get the correct standard value you must make sure you include everything that is a cost for the company in hiring and maintaining an employee. This doesn't just mean or include how much the person is paid, but also how much having that certain employee impacts on the financial situation of the company. For the calculation of the standard rate per direct labour hour, it is an addition of each individual cost. Firstly, you take the basic wage rate of an employee per hour of working - this means an average of every employee, ranging from temporary help to the owner or president of the company. Next, you must include the employer contribution for taxes that must be paid for each employee, at either end of the spectrum. This includes the employer's portion of federal and state taxes, as well as any FICA (Social Security and Medicare) funds. These are normally in the range of 10%. Any fringe benefits must also be highlighted and added in to the equation, which are normally 30% of the basic wage rate. Add these all together, and you get the standard rate per direct labour hour. Many companies use this single, standard rate of pay for all employees in a certain department. This standard rate reflects the expected "mix" of workers, from temporary to high-end permanent, even though the actual wage rates may vary greatly form top end to bottom, dependant on position and different skills. A single standard rate simplifies the use of any and all standard costs.
