How to Calculate Actual Rate Per Direct Labor

Direct labor refers to those who produce goods, such as workers on an assembly line. Usually when dealing with direct labor, the actual rate is set by you. It is the amount you agree to pay each direct labor employee for direct labor hours worked. Small business owners then use this amount to find the variance between the actual rate and the standard rate for the area to see whether they overpaid or underpaid for the direct labor. However, if you just paid a lump sum for the direct labor costs, you can find the actual direct labor rate by dividing the total amount paid by the actual hours worked.

  1. 1.

    Write down the full amount of the direct labor. This is the full amount you paid just for labor and not for supplies, materials and other essentials for the job.

  2. 2.

    Find out how many hours each laborer worked. Multiply the hours worked each day by the amount of days worked. For instance, say the labor workers worked for eight hours a day, five days a week for two weeks. Multiple eight by five to get 40. Then multiply 40 by 2 to determine that each worker worked 80 direct labor hours in the two-week period.

  3. 3.

    Multiply the amount of each worker's direct labor hours by the total amount of workers. Adding to the example above, say there were 100 direct labor workers for the job. Multiply 100 by the number of hours each worked, in this case 80. That comes to 8,000 direct labor hours.

  4. 4.

    Divide the full amount paid for direct labor by the full amount for direct labor hours. Keeping with the example, say you paid $108,000 for direct labor. Divide this amount by the 8,000 direct labor hours worked. The amount of the actual rate per direct labor hour is $13.50.