What is a Labor Cost Distribution Report?

While HR should be focused on people, this position also deals with a lot of data analysis. Personnel can be one of the largest investments for a business, especially small businesses, so it's crucial to assess how well employees are performing.

One helpful tool used by the HR management team is called a labor cost distribution report. What is a labor cost distribution report? Read on to learn more.

What is a labor cost distribution report?

A labor cost distribution report captures important data such as work hours, wages, benefits, deductions, and more. Typically, this data is broken up by department and includes information such as goals and where the funds come from. The complexity of these reports can differ greatly depending on their use. The overall goal is to better understand how well employees and departments are operating, where things can be run more efficiently, and where costs can be cut.

Typically a labor cost distribution report includes the following information:

• Staff members
• Salary/hourly rates
• Total hours worked, direct hours, direct dollars
• Education/research hours
• Vacation hours, vacation dollars

HR professionals can use this report to evaluate how hours and dollars are being spent by the company. The same kind of analysis can be done at the department level to assess how different parts of the firm are contributing to overall company success.

How to create a distribution report

With a clearer understanding of a labor cost distribution report, we encourage HR professionals to create a report of their own. Using examples such as the one above can serve as a starting point, but it’s important for businesses to customize the columns to align with their specific strategies and objectives.

The first step to creating a distribution report is gathering the correct information, such as hours worked, employee wages, and employee benefits. Some include details such as which funds were used to pay these expenses. A report can be made in a number of ways, but it's easiest and more likely to be accurate if you use an integrated tool to create a report like this. HR software that does payroll, employee benefits and more can automatically calculate distribution reports with fewer opportunities for errors than if they're created manually.

Why create a labor cost distribution report?

After asking the question, "what is a labor cost distribution report?” your next question is likely, "why create one?" We want to make sure HR professionals understand the benefits of this report. Here are some of the main ways these reports are advantageous to companies of all sizes, but especially small businesses. These reports help companies:

• Analyze how labor costs are being spent and allocated across the business
• Determine productivity by department, office location, or employee
• Ensure there are no errors in payroll
• Make sure the right departments and cost centers are being charged for work
• Improve budgeting process and visibility
• Make inform decisions about hiring and firing needs
• Better understand profit margin drivers

Next steps

If your company thinks they could benefit from creating a labor cost distribution report, they’re not alone.  We recommend starting with your payroll processor and accounting departments, as they may have a good chunk of the data already compiled. From there, HR professionals can customize these reports or create their own.