Determining Your Company’s True Labour Cost

45108583_s.jpgNo matter what kind of business you run, finding accurate costs helps you profit and save money in every way. From estimating monthly overhead to planning for bonuses, you need to know how assorted costs affect your budget.

One of the most confusing and often miscalculated business expenses are labour costs. Labour costs is the amount each worker costs your business. Many business owners believe that this expense simply falls under payroll, however, labour costs combine your payroll, employee paid taxes, benefits like insurance, retirement and supplies and equipment your company pays for. To determine your company’s true labour costs, consider the below expenses.


To determine accurate labour costs, first, take a look at your payroll. Each employee earns either a salary or hourly wage. Deductions such as insurance payments, taxes and retirement are taken out of the wages before paychecks are distributed. Always be sure that monies deducted are held in trust until provincial and national taxes are due. Calculate each employee separately using accounting software for most efficient and effective payroll.

Employee Taxes

For every person you employ, you must pay taxes on them. In the USA and Canada, Medicare and unemployment taxes must match those contributed by the employee. Since individual provinces have different calculation rates, speak with your accountant before you set up these calculations.


Good employees are harder to retain without proper insurance. Benefits paid by the company aren’t as common, but insurance is an optional purchase through employers. While the employee pays their half, you pay your half too.

Retirement and Bonuses

A big consideration that keeps your employees working for you is your company retirement plan and bonus incentives. Depending on what kind of benefit package you have, you might be matching a RRSP, or a smaller scale retirement plan. Bonuses and incentive programs typically do well for any company. Be sure to factor these into your total labour costs.

Indirect Expenses

Are you calculating safety equipment, electronics and other items provided by your business into labour costs?  Indirect expenses might be difficult to pin down, but it’s best to at least get an estimate of what must be calculated into your labour costs. This way, you have a better gauge on your profit-making percentage and know what to expect when creating budgets.

Ultimate Guide to Reducing Labour Costs