A departmental labour rate expresses labour cost per hour on a defined basis. To understand the real average cost, reconcile the included costs and hours for the same department and period. A configured planning rate is not proof of the actual cost incurred. PMI labour calculations distinguish imported total cost from cost calculated using hours and a rate. Establish which basis supplies the value you are reviewing.
Include the intended cost components
The rate used for total labour-cost planning should account for the relevant employer costs, including taxes and social charges. Check with the controller or payroll owner which components are included and whether they are already part of the imported total.
Confirm the treatment of employer contributions, holiday-pay accruals, overtime, benefits, agency or outsourced labour, and departmental transfers where relevant. Do not add social charges a second time if the source total already includes them.
Match the cost and hour basis
Use costs and hours covering the same people or labour categories, department and period. Establish whether the requested rate is per paid hour, worked hour or productive hour. These denominators can produce different valid results and should be labelled explicitly.
If a cost is included but its hours are excluded, or hours are transferred without the corresponding cost treatment, the resulting rate may be misleading. An incomplete payroll period or missing hours cannot support a reconciled actual rate. If the denominator is zero, the rate is undefined rather than zero.
Worked example
Illustrative example on a paid-hours basis:
| Component | Amount |
|---|---|
| Pay and other included labour costs, before employer charges | 200,000 currency units |
| Employer/social charges not already included above | 50,000 currency units |
| Total included labour cost | 250,000 currency units |
| Matching paid hours | 1,000 hours |
| Average total labour cost per paid hour | 250 currency units |
The rate is 250,000 divided by 1,000. Compare this actual rate with the configured rate only after aligning their cost and hour definitions.
For several departments, add their compatible costs and hours before dividing. Do not take an unweighted average of departmental rates when their hour volumes differ.
Use the result appropriately
Review a material difference with the controller or payroll owner before changing planning assumptions. Keep a record of the source totals, included cost components, hour basis and period.
The average rate is also not necessarily the cost that can be avoided by removing one scheduled hour. Fixed salaries and other commitments can remain even when allocated hours fall.
Ask PIA
“Using these authorised departmental cost and hour totals, calculate the average hourly cost, state what is included and compare it with the planning rate.”
If salary data or cost components are unavailable, PIA can explain the method but cannot establish the property’s actual rate. Keep payroll and salary information within the user’s permitted scope.