Cost of Labor Law and Legal Definition

Cost of labor involves the process of establishing external pay practices, where information on labor market costs (total compensation amounts) are gathered from labor market competitors and forecast total compensation opportunity. The two key elements in establishing an effective payroll administration system are, first, setting company policy regarding pay and, second, determining how often payroll will be done and who will do it.

For many companies, payroll for both direct and indirect labor is the largest line item. There are additional costs, such as payroll taxes and insurance coverage that need to be figured into the total budget.