It also includes the total amounts of all employee benefits and federal, state, and local payroll taxes that your business has paid not the portion your employees paid. The cost of labor is broken into direct and indirect overhead costs. Direct labor costs are those expenses that are directly related to product production. Direct costs include the wages of employees who directly make the product. Indirect labor costs are those expenses related to supporting product production.
Indirect costs would include the wages of office workers, security personnel, or employees who maintain factory equipment. Unlike payroll expense, the cost of labor also includes the amounts paid to contract labor.
An independent contractor also called a freelancer provides work for your business when needed, but they are not an employee. They are paid on a contract basis, using an IRS Form to report the payments. Since payroll expenses can be a significant expense for your business, you must know how to manage your payroll expenditures shrewdly. Another reason is your cost of labor plus your material and overhead costs needs to be factored into your product prices.
On the other hand, the term "wages" is used when describing pay rates for employees in positions that are classified as hourly, non-exempt roles. Titles for employees who process wage payments include payroll specialist, payroll coordinator or payroll clerk.
Employees who process payroll must have knowledge of compensation and benefits, income and payroll tax regulations, and legal procedures, such as court orders for garnishments and child support.
In addition, payroll specialists must be familiar with technology that supports proper withholding for taxes, benefits and payroll deductions on an aggregate basis, as well as for payroll scenarios on an individual employee basis. Many payroll specialists are involved in the coordination of human resource management systems that are specifically configured for complex payroll processing.
Generally speaking, specialists who work in the compensation area of human resources should have some knowledge of payroll processes. However, compensation specialists are more familiar with wage-setting, compensation trends and the effect labor market trends have on compensation practices.
Compensation specialists also may be involved in discussions about employee bonus programs and other forms of employee compensation, such as cash incentives and employee rewards.
List of Partners vendors. A wage expense is the cost incurred by companies to pay hourly employees. This line item may also include payroll taxes and benefits paid to employees.
A wage expense may be recorded as a line item in the expense portion of the income statement. This is a type of variable cost. Wage expenses are sometimes reported by department and they are most likely to be reported separately for the production department.
This department is often the one with the most hourly employees. On the other hand, wage expenses for production workers may be incorporated into the cost of goods sold COGS item on the income statement. Wage expenses vary from one period to the next, depending on the number of business days in the period and the amount of overtime to be paid.
Business days vary from month to month and may be affected by the number of holidays during the period. After the holiday season, companies then may cut back on the number of workers when business is not as busy and the need for additional workers has gone. Under the accrual method of accounting , wage expenses are recorded based on when the work was performed.
In contrast, under the cash method of accounting, wage expenses are recorded at the time the payments are made. Wages payable is the line item that identifies how much in wages are owed to workers but have not yet been paid. It is a liability account. When a wage expense is recorded it is a debit to the wage expenses account, which requires a credit to the wages payable account for the same amount until the wage is paid to the worker.
Wages are typically paid to a worker in the pay period following the period in which the work was performed, so there is always a delay, which is reflected in the wages payable account.
A wage expense is an expense account that appears on the income statement while the wages payable account is a liability account that appears on the balance sheet. A wage expense has to at least be equal to the minimum wage dictated by the federal government or the state government.
The current minimum wage in the U. Many states have implemented minimum wages that are higher than the federal wage and employers in those states have to pay the higher state minimum wage. Many companies pay a higher minimum wage than the federal or state minimum wage. Wage and salary are often used interchangeably but they refer to different types of payments for employment.
Wages most often refer to hourly pay. The worker is paid per hour for a set amount of hours per week. If they go over the set amount of hours, then they are usually paid overtime. Overtime pay can sometimes be higher than the regular hourly pay; sometimes 1. Salary refers to a set amount of payment that does not change throughout the year and is usually quoted as an annual sum rather than hourly.
With salaried jobs, there is no set amount of hours an individual works, so if the person works 40 hours a week or 60 hours a week, there is no difference in pay.
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