I work for a large corporation that manufactures and sells power equipment. When pricing products, there are two labor rates we consider:
Straight labor - the average hourly rate of a manufacturing person. This just includes direct pay and I think the employer's portion of social security and medicare taxes. This rate is in the low $20s, I think.
Burdened labor - this cost includes benefits the employer pays, the cost of operating the facility he works at, the cost of support staff, etc. This number is in the $120 / hr range.
There are different burdened labor rates for different functions. Engineer and manufacturing have different burdened and straight labor rates.
So you're only considering straight labor, the business has to consider burdened labor costs, otherwise his business will fail. And BTW, burdened labor rates are rising faster than the normal inflation rate due to supplier shortages, customs fees, expedite charges for shipping, etc.
Straight labor is a small part of the overall cost for a business.
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