Is labor the biggest fixed cost in an organization?

Answer 1

Labour costs may be either fixed or variable, so therefore labour may or may not be the largest fixed cost in an organization depending on the nature of the company and its employees.

Variable labour costs are known as wages and fixed labour costs are known as salaries. Wages are usually billed per hour, and are therefore variable costs (e.g. a worker is paid $15 for every hour he/she works). Salaries are paid out no matter how long the employees work for, and are therefore fixed costs (e.g. a person on a $70 000 salary is always paid $70 000 no matter how many hours he/she works). Other labour costs that are variable include commissions, where the employee is paid a percentage based on how much revenue he/she generates for the business, or how many products he/she sells, or how many customers he/she acquires. Depending on what percentage of employees are on wages, salaries, or commissions, the fixed cost of labour varies depending on the organization.