Direct labor refers to the cost of the employees who work directly on the production of a product or service. These are the employees who are directly involved in the manufacturing or delivery process and are essential to creating the final product or providing the service.
Direct labor costs typically include wages or salaries, payroll taxes, benefits, and any other costs associated with employing workers. We often consider the cost of direct labor a variable cost, as it can increase or decrease depending on the level of production or service provided.