HUMAN RESOURCE DECISIONS 143
capacity) can be calculated as:
Working days 52× 5 260
Less:
Annual leave 20
Sick leave 5
Public holidays 8 33Actual days at work 227The total employment cost per working day for this employee is therefore £174.89
(£39,700/227 days). Assuming that the employee works eight hours per day and
the employee is productive for 80% of the time at work, then the cost per hour
worked is £27.33 (£174.89/(8×80%)).
The employee, taking home £30,000 for a 40-hour week, may consider their cost
as £14.42 per hour (£30,000/52/40). This example shows the total employment cost
and the effect of the paid but unproductive time on this cost, which almost doubles
(what is £14.42 per hour to the employee is £27.33 per hour to the employer).
The cost per unit of production can be expressed either as the (total employment)
cost per (productive) hour worked, in this case alabour cost per hourof £27.33, or
as a cost per unit of production. If an employee during their productive hours
completes four units of a product, thedirect labour cost per unit of productionis
£6.83 (£27.33/4). If a service employee processes five transactions per hour, the
direct labour cost per unit of production(a transaction is still a unit of production) is
£5.47 (£27.33/5). An employee who is not involved in production but carries out a
support role is classified as anindirect labour cost.Thisisreferredtoasabusiness
overhead(see Chapter 11).
The calculation of the cost of labour is shown in Table 10.1.
In the longer term, a business may want to take a broader view of the total
cost of employment. As Chapter 9 showed in relation to the product development
phase of the lifecycle, many costs are incurred before a product/service comes to
market. The same is true of employees, who must be recruited and trained before
they can be productive. A longer-term approach to the total cost of employment
may include these costs as additional costs of employment. In relation to short
term and long term, the issue arises as to whether the cost of labour is a fixed or
variable cost, following the distinction made in Chapter 8.
Table 10.1 The cost of labour
Cost Time
Salaries and wages+oncosts (pensions,
National Insurance etc.)+non-salary
benefits (motor vehicles, expenses etc.)=
total employment cost
Working days−annual leave, sick leave,
public holidays, etc.=actual days at work
×at work hours×productivity=actual
hours worked
total employment cost
actual hours worked=labour cost per hour