what is direct labour

Direct labor refers to the salaries and wages paid to workers who are directly involved in the manufacture of a specific product or in performing a service. The work performed must be related to the specific task. For example, in a manufacturing business, direct labor is the work performed by the workers who produce goods, such as machine operators, assembly line operators, painters, and so forth. In a service business, direct labor is the work performed by the workers who provide services directly to customers, such as auditors, lawyers, and consultants. Direct labor cost is a part of the wage-bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service. The direct labor cost includes the cost of regular working hours, as well as the overtime hours worked. It also includes related payroll taxes and expenses such as social security, Medicare, unemployment tax, and worker’s employment insurance. Companies should also include pension plan contributions, as well as health insurance-related expenses.