Glossary
Hourly cost
The total cost the company bears for every hour of work by an employee. Includes salary, contributions, severance, holidays, sick leave, and indirect costs.
What is hourly cost
Hourly cost is the total cost the company bears for every hour effectively worked by an employee. It's not the net salary divided by hours: it includes all the components that make up personnel cost.
How to calculate it
Hourly cost = Total annual employee cost / Hours effectively worked per year
Total annual cost includes:
- Gross salary
- Employer social contributions (typically 20-35% of gross, varies by country)
- End-of-service provisions (severance, pension — typically 5-10% of gross)
- Bonus months and mandatory allowances (where applicable)
- Holidays, leave, sick days (hours paid but not worked)
- Mandatory training
- Equipment (PPE, tools, clothing)
Effective hours worked are the productive ones: from contractual hours (e.g., 1,760/year), subtract holidays, public holidays, leave, average sick days. The typical result is 1,500-1,600 hours/year.
An example
| Item | Annual amount |
|---|---|
| Gross salary | € 28,000 |
| Employer contributions (~20-35%) | € 8,400 |
| End-of-service / pension (~5-10%) | € 1,960 |
| Other (training, PPE) | �� 600 |
| Total annual cost | € 38,960 |
Effective hours worked: 1,560
Hourly cost = € 38,960 / 1,560 = €24.97/h
A worker with a €28,000 gross salary costs the company nearly €25 per hour, not the €14-15 you'd get by dividing the monthly net pay by hours worked.
This figure is essential for calculating the full cost of a product and preparing accurate quotes.
Learn more: Full costing | How to calculate product cost