Concept of Labour Cost

Concept of Labour Cost


The cost of wages paid to workers during an accounting period on daily, weekly, monthly, or job basis, plus payroll and related taxes and benefits .

Labour cost means all amount which direct or indirect is given to labourer or employee for his work for production .
More more detail can get from Labour bureau and business dictionary
In labour cost we include two type cost relating to labour

Ist type – Monetary cost of labour

In monetary cost of labour includes

  1. basic wages/salary of employee
  2. dearness allowance
  3. provident fund
  4. Employee state Insurance ( ESI)
  5. Employee’s share in profit of business
  6. pension of employee
  7. Gratuity and other monetary benefits

2nd Type – Non monetary labour cost

  1. Free food facility to labourers
  2. Subsidised housing facility
  3. free educational facility to employee’s children

Main Reasons of Increasing labour cost

It is the duty of cost accountant to reduce the cost of labour so that cost of production will reduce and businessmen can sell their products at lower price. So he must know what exact reasons beyond increasing labour cost .

Ist Reason

  • Increasing labour turnover
  • Increasing idle time
  • forgery names in wage sheet

Labour Cost