Direct labor rate refers to the amount of money a company pays for labor per hour. Employees who are directly involved with the production of a product are considered direct labor. Indirect labor involves jobs like repairing equipment or setting up equipment, which means that the worker is performing work that is not directly involved in creating a product. If you are given information concerning the amount of hours worked and the total direct labor costs, you can calculate the direct labor rate.
Write down the total number of hours spent on the production of a specific item. For instance, a company may have recorded 100 hours being spent on the production of Item A.
Write down the total direct labor costs. Continuing with the example, assume the company spends a total of $1,000 in direct labor costs for a specific production period of Item A.
Divide the total direct labor costs by the number of hours spent on production to find the direct labor rate. In this example, you would divide 1,000 by 100 to get a direct labor rate of $10 per hour.