Elements and allocation of labour costs

‘Labour costs' include all of the worker-related costs associated with producing the merchandise under investigation. Besides the base pay of the workers, labour costs include overtime pay, any special incentive pay, shift differentials, bonuses, employee benefits (such as vacation pay, sick pay, holiday pay, insurance), and any government-mandated benefits. The pay to all types of workers should be included - full-time employees, part-time workers, and contract workers.

The labour costs associated with supervisory personnel must also be included if they are not captured in overhead expenses.

Allocation of labour costs, like material costs, depends on the accounting system. Most accounting systems calculate a unit time for each product, and then allocate total labour costs based on the unit time per product. At some companies, the unit times already exist as part of the normal accounting system; at other companies, the company staff must calculate unit times as part of the anti-dumping investigation. The Commerce Department accepts such allocations, as long as the basis for the unit time calculations is reasonable.

Note that the important point is not the accuracy of the unit time calculations themselves, but the accuracy of the relative unit time calculations. If the unit time calculation for an individual product, or for an individual step in the production process, is accurate relative to the other products or other steps in the production process, the fact that the unit time calculations for all products or all steps are too high or too low does not matter. The unit time calculations are not labour costs; they are only an accounting tool through which to allocate total labour costs to individual products.

Like material costs, labour costs are different for cost of production and constructed value, but only to the extent to which the products being considered are different — cost of production involves the cost of merchandise sold in the foreign markets, while constructed value involves merchandise sold to the United States. To the extent that the merchandise in the two markets is identical, the costs will be the same. The basic methodology for determining the labour costs is the same.

Special issues

In many foreign companies, a major part of total compensation is paid in the form of annual bonuses. Since the Commerce Department is well aware of this business practice, it often closely scrutinizes the labour costs reported by foreign companies to make sure that these labour costs are included. Bonuses paid outside the period of investigation are prorated and a portion is included in the labour costs. The accounting systems at most foreign companies clearly account for these bonus payments, and so there is usually no problem in satisfying the Commerce Department. Foreign companies should be sensitive to this issue, however.

In many countries, the cost of part-time labour is significantly lower than the cost of full-time labour. Part-time workers are not entitled to many of the social benefits and company benefits that can significantly increase the total cost of labour. If a company uses part-time labour disproportionately for one product, the Commerce Department might ignore the company's internal allocation of labour costs to that product, and instead use the company-wide average.

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures