This article by Dick Allen, retired MSU Regional Farm Management Agent, is reprinted with permission from "Greenhouse Update" MSU Wayne Co. Extension.
When calculating labor costs make sure you take everything into account. You may underestimate the cost of labor if you use the base wage rate rather than the cost per productive hour. For instance, your base wage is $10.00 per hour. After paying FICA and other taxes, 15% of payroll, the rate is $11.50 per hour. The person works full time, 50 hours per week, with one week paid vacation and one week paid sick leave (you need to adjust for sick leave even if the employee doesn't use it) and gets five paid holidays. Total number of work hours per year would be 52 weeks at 50 hours = 2600. Cost of vacation, sick leave and holidays is 145 hours x $11.50 = $1667. Subtract the sick leave, vacation and holiday time (145 hours) to get 2455 potential hours.
Assume that 10% of the employee's time is nonproductive (245.5 hours), spent moving from job to job etc; so you now have 2209.5 hours available. You allow two 15 minute paid coffee breaks per day (0.25 hour at 11 per week (one on Saturday) x 50 weeks = 138 hours (2071.5 potential productive hours available). Even your best workers goof off some time so assuming 10% goof off time (245.5 hours), you now have 1826 potential productive hours available.
Your health insurance costs $300 per month for this employee ($3600 per year) so health insurance cost per productive hour is $3600/1826 = $1.98 per hour. The cost of vacation, sick leave and holidays per productive hour is $1667/1826 = $0.92 per hour. The total cost per productive hour would be $10.00 + $1.50 (taxes) + $1.98 (health insurance) + $0.92 (vacation, sick leave and holidays) = $14.40 per productive hour. This is 144 percent of your base pay rate. This is also the rate that must be charged for any labor used to produce a crop.
