Indirect Labor: Definition & Examples

Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson, we will discuss what indirect labor consists of. We will also look at some employees that fall within this category and apply information to real life scenarios. This will be followed by a summary and a quiz.

What Is Indirect Labor?

Imagine you own your own toy store. Every day, you produce and sell a variety of toys for kids of all ages. On a daily basis, you have 20 employees on your payroll, ranging from those that operate the machines that produce the toys to those that package them. While those employees that aid in producing and selling the toys seem like obvious labor that contributes to your business, there are other employees that often do not come to mind that are also on your payroll. Those employees are what we call indirect labor.

So, what exactly is meant by indirect labor? Well, for starters, indirect labor, includes employees who are not directly involved in the production of goods and/or services. While they do support the production process, they do not actually help in converting materials into the finished good and are not usually assigned a specific task, like operating one specific machine all day.

Who Falls Within the Category of Indirect Labor?

Now, that we know what indirect labor is, let's look at those employees that make up this group within a business.

1. Accountants- Accountants are needed to handle the financial aspect of businesses. Without them, a business may not be able to properly budget their money, which could cause the company to close or stop production.

2. Supervisors- A supervisor has to oversee those employees who are actually involved in the production process. They may not convert materials into finished goods, but they are necessary to ensure those who do, are doing their job.

3. Security guard- Security guards are responsible for making sure the production area is safe and free from anything or anyone that might interfere with production.

4. Production supervisors, quality control employees, marketing employees, and engineering positions, also fall within this category as they fulfill managerial and supervising roles but are not directly involved in the actual production process.

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