Wage expense
The term represents one of the key costs for a business. It is a variable cost that represents the cost of hiring employees for a set period of time.
A wage expense refers to the expenditure that companies bear in compensating their hourly employees. It encompasses not only the actual wages but also includes payroll taxes and employee benefits. Typically, a wage expense is recorded as a separate item in the expense section of the income statement. It represents a type of variable cost that fluctuates based on factors such as hours worked and wage rates.
Usually businesses calculate their wage expense based on one of the three types of wage expenses:
- Time wages – it refers to the time an employee spends working and can be estimated in terms of an hourly rate, for example, £10 per hour.
- Piece wages – it refers to cost per unit of goods an employee produces, for example, £20 to an employee per a piece of item produced.
- Contract wages – it refers to the price of a contractual obligation to deliver a particular result, for example, a worker is paid £20,000 per 4 finished consulting deals.
In a company, wage expenses are commonly reported on the basis of different business units. In the case of manufacturing companies, a segment of their wage expense might be consolidated and accounted for as part of the costs of goods sold (COGS) on the income statement. This applies specifically to companies engaged in the production of goods.
