Calculating Labor Costs
by Tom
What is the true cost of a labor hour? Let’s start with salary. Maybe the average tech writer in your organization makes a little over $60,000 a year. For convenience, we’ll say it rolls out to $30 an hour. In order to get to the number some companies call “total cost” (it isn’t), you need to multiply the direct labor cost by a number that represents additional costs such as employee benefits, vacation, and holidays, along with overhead costs such as facility rent, liability insurance, workers comp, etc. Companies generally use a multiplier between 2.5 and 4 to get to the total cost level. We’ll use 3. So now our $30 an hour just became $90. But that’s not all. On top of this number, companies will generally layer G & A (general and administrative) cost and profit. Let’s say G & A is 10% and profit is 15%. That brings us to $113.85 per hour (90 x 1.1 = 99; 99 x 1.15 = $113.85)
When you’re running out the numbers, don’t forget that there are 52.1667 weeks in a year and 4.3 weeks in a month. Don’t short yourself by rounding these numbers down.