What is the difference between direct and indirect labor?

Direct labor is the employees involved in producing goods or services, while indirect labor supports the operations of the business without directly participating in the production process.

When it comes to running a successful business, understanding the difference between direct and indirect labor is crucial.

📢 Example

In the manufacturing industry, direct labor includes workers who are involved in assembling products or operating machinery that produces goods.

In contrast, indirect labor includes workers who provide support services such as maintenance, security, sales, marketing, and administrative tasks that keep the company running smoothly.

In the context of Modeliks as examples are the following:

Direct labor

Developers who write code and design software applications. Designers and quality assurance teams who design and test our software.

These employees are directly involved in the production of the software and are responsible for creating the end product ✔️

Indirect labor

Employees such as sales and marketing, human resources personnel, accountants, and office administrators.

While these employees do not directly create the software, they provide services that are essential to the operation of the company, such as recruiting and hiring new employees, managing finances, and maintaining office infrastructure.

By understanding the difference between these two types of labor, businesses can accurately track their costs and make informed decisions about how to allocate their resources 🙌

🚨 It is important to distinguish between direct and indirect labor because the cost of each type of labor is treated differently in the company's financial statements.