Total labor cost consists of which elements?

• A. Pay, payroll taxes and assessments, and benefits cost
• B. Pay only
• C. Benefits cost only
• D. Payroll taxes and assessments only

Answer: (A)

Total labor cost includes everything a business must pay to employ someone, not just their wages. The three parts are the gross pay (wages or salary) the employee earns, the employer’s share of payroll taxes and assessments (such as Social Security, Medicare, unemployment taxes, workers’ compensation, and similar charges), and the cost of benefits provided (health insurance, retirement contributions, paid time off, life or disability insurance, etc.). Adding these together gives the true cost of employing that person for the period. For example, if a worker earns $500 in a week, the employer pays $40 in payroll taxes and assessments, and $60 in benefits, the total labor cost for that week is $600. Paying only wages would miss the taxes and benefits, while paying only taxes or only benefits would omit substantial parts of the overall cost.