When calculating labor costs take everything into account

Editor’s note: This article is from the archives of the MSU Crop Advisory Team Alerts. Check the label of any pesticide referenced to ensure your use is included.

You may underestimate the cost of labor if you use the base wage rate rather than the cost per productive hour. For instance your base wage is $10.00 per hour. After paying FICA and other taxes, 15% of payroll, the rate is $11.50 per hour. The person works full time, 50 hours per week, with one week paid vacation and one week paid sick leave (you need to adjust for sick leave even if the employee doesn’t use it) and gets five paid holidays. Total number of work hours per year would be 52 weeks at 50 hours = 2,600. Cost of vacation, sick leave and holidays is 145 hours at $11.50 = $1,677. Subtract the sick leave, vacation and holiday time (145 hours) to get 2,455 potential hours. 

Assume that 10% of the employee’s time is nonproductive (245.5 hours) spent moving from job to job, etc., so you now have 2,209.5 hours available. You allow two 15-minute paid coffee breaks per day (0.25 hours at 11 per week [one on Saturday] x 50 weeks = 138 hours) so now 2,071.5 potential productive hours are available. Even your best workers goof off so assuming 10% goof off time (245.5 hours), you now have 1,826 potential productive hours available. Your health insurance costs $600 per month for this employee ($7,200 per year) so health insurance cost per productive hour is $7,200/1,826 = $3.94 per hour. The cost of vacation, sick leave and holidays per productive hour is $1,667/1826 = $0.92 per hour. The total cost per productive hour would be $10.00 + $1.50 (taxes) + $3.94 (health insurance) + $0.92 (vacation, sick leave and holidays) = $16.36 per productive hour. This is 164 percent of your base pay rate and the rate that must be charged for any labor used to produce a crop.

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