Direct labor costs are those costs which are performed during the production of some product. The product can be any type of item from a machined part, computer and vehicle. Labor is required to change a raw material into a product that may be sold or given away. Direct labor is calculated by taking the direct time a product takes to create multiplied by the rate charged per hour by the processes. The direct labor may actually be multiple steps on the production of the product. The total direct labor is the sum of all the labor at the various steps during the creation of the product. There are many examples of those that provide direct labor including Laser operators, CNC operators, Machine Shop operators, sheet metal workers, wood workers and many others. You may think that direct labor is just the individual rate that you pay the employee but there is much more to it. An employee has benefits including health insurance, sick days, vacation pay, FICA and other fees. Adding up all the fees makes the hourly rate considerably higher than the hourly pay of the employee.
MIE Solutions provides software resources to help you manage your direct and indirect labor throughout the product lifecycle from quoting and estimating, job costing to invoicing.