Your Free Overhead Training from MyOverhead.com | Lesson 3
If you missed Lesson 1: “Separate out your expenses from your profit and loss statement” you can click here to access it or type the URL below into your internet browser:
“https://app.myoverhead.com/free-overhead-training-lesson1-1-1/”
If you missed Lesson 2: “total your Indirect Labor Costs” you can click here to access it or type the URL below into your internet browser:
“https://app.myoverhead.com/free-overhead-training-lesson-2-1-12/”
We will be going over step 3 in this Lesson.
The five step process to calculate your overhead rate.
- Separate out your expenses from your profit and loss statement
- Total your Indirect Labor Costs
- Count your Direct Labor Employees
- Total your Direct Labor Hours
- Calculate your Overhead Rate
Lesson 3: Count your Direct Labor Employees
Direct Labor Definition: labor involved in production rather than administration, maintenance, and other support services.
Meaning direct labor refers to all employee who spend time working on tasks, projects or roles in the business that CAN be tracked back to specific service, production units or products. In other words, it is any work that can be billed to customers, goods or products.
For example, if you are a contractor and you have employees in the field working on a project then those employees are considered as Direct Labor Employees and should be counted.
Another example, if you have a hair salon and have stylists cutting hair for clients then those employees are considered as Direct Labor Employees and should be counted.
You will see employees at times, are split based on groups or division in a particular business and can be counted as partial Direct Labor Employees.
In most small business employees tend to wear several different hats and can cross from direct labor to indirect labor. You should try and calculate as close as possible the total amount of Direct Labor employees. Because it will cause your calculation to be off and you will not have an accurate overhead cost per Direct Labor employee when finished.
For example, if a contractor works for himself and works in the filed on projects half the time as well as works in the offices the other half of the time, then the Direct Labor count for that owner would only be .5 or ½.
Here are some examples of typical direct labor positions:
Construction Workers
Assembly Line Workers
Delivery Truck Drivers
Auto Mechanics
Hair Stylists
Chefs
Line Cooks
Accountant Workers
Attorneys
Doctors
Dentists
Now count every direct labor employee from the same year and come up with a total. Always include every direct employee, even if they only worked an hour, one week, 30 days, etc…
Congratulations you have completed the third step in calculating your overhead.
I recommend you do these calculations every month or at least every quarter for your company.
With MyOverhead.com counting your Direct Labor employees and grouping them into divisions or groups is quick and painless and updating your information monthly can be done in minutes instead of hours. Give MyOverhead.com a try today by clicking the Get Started Now button below.
Thank you,
Mark Lallemand
MyOverhead.com
P.S. Next we will go over Lesson 4 in calculating your company’s overhead so keep watching for the next Free Training email.
