Labour costs

Labour costs describe all costs incurred by an employer from the employment of labour. Labour costs are usually presented as costs for an hour worked. Costs arising from work premises, commuting or untaxed daily allowances are not included in labour costs.

Total labour costs are obtained by deducting employer's subsidies from the sum of labour cost items. Employer's subsidies are intended for full or partial financing of costs arising from direct compensations paid by the employer. Such subsidies comprise employment subsidies and training compensations paid to employers.

In the labour cost index, labour cost items are grouped as follows:
- remuneration exclusive of one-off pay components
- one-off pay components
- social security costs

In the labour cost survey, labour cost items are divided into the following main groups:
- direct earnings
- one-off pay components
- remuneration for days off
- contributions to personnel funds
- costs of fringe benefits and company products
- social security costs
- training costs
- other labour force costs

Direct earnings refer to wages and salaries paid for hours worked in each pay period. Direct earnings comprise
- direct compensations paid on the basis of hours worked, output produced or amount of work performed
- compensations for overtime, shift work and the like
- additional bonuses and compensations paid regularly in each pay period.

One-off pay components refer to items that are not paid regularly in each pay period. Such bonuses that are often paid only once a year include performance-based bonuses and holiday pay, and seniority increments paid in some hourly paid fields. Payment of one-off pay components can also be based on collectively bargained agreements.

Pay for days off refers to compensations paid for statutory, agreement-based or voluntarily granted leaves, national holidays or other paid days of leave. Typical items of this group are pay during annual holiday entitlement, monthly paid employees' pay during national holidays, hourly paid employees' compensation during national holidays and days of leave in compensation of shortened working hours.

Payments to personnel funds refer to the sums enterprises may annually contribute to their employees' saving systems, such as personnel funds.

Costs of fringe benefits and company products include all costs incurred by an employer from the goods and services it provides for to its employees. Such goods and services include e.g. company car and subsidised meals, incentive stock options and personnel's recreational and social activities. Own personnel's pay is not included.

Social security costs refer to the sum employers pay for the social security benefits of its employees. Such statutory, agreement-based or voluntary payments include employment pension, social security and unemployment insurance contributions. Additionally, this group comprises as imputed social security funding items pay during illness and parental leave (net, i.e. less compensations paid to the employee by the Social Insurance Institution) and occupational health care costs (likewise, net), as well as compensations arising from the termination of an employment relationship.

Training costs include e.g. costs of professional training services, costs of course participations, fees of instructors hired from outside the enterprise and payments to organisations arranging training. By contrast, pay for the participants during training is not counted as training costs but as pay for hours worked.

Other labour costs include e.g. costs arising from protective and working clothes and from the procurement of labour.

Employer's taxes paid on the basis of the sum of wages and salaries or the employed labour force that the labour cost concept of the European Union contains do not exist in Finland.

The concept of labour costs partly equals the national accounts concept of compensation of employees but exclusive of e.g. occupational health care, training and recruitment costs.