Introduction - Labour Minute Value C

It is common knowledge that cost price negotiation pressures can often result in a crude bargaining appr
of the manufacturing cost, particularly labour cost is disregarded in the interest of concluding an order. In
suppliers would benefit from greater transparency and precision in determining the labour component in

FWF has begun to explore the ways in which the labour cost can be isolated and fixed in commercial deal
can ensure that any increases in the minimum wage or application of a higher wage benchmark are fully
transparent costing and price setting process.

Good insight in their costing structure enables suppliers to better ensure that the labour costs they incur
the cost price negotiations with its buyers. For buyers this would constitute an element of due diligence e
are sufficient to cover the impact of a wage increase on a manufacturer´s labour cost.

Following this research, Fair Wear Foundation has developed a tool which should enables factories to dete
and how much this needs to rise following a rise in minumum wage or application of a living wage bench

The labour cost component consists of 3 elements: 1) The country specific mandatory wage elements acc
factory specific non-mandatory elements which a manufacturer requires to retain, reward and incentivise
factory costs related to labour. From a due diligence perspective, all elements need to be captured in cos

In order to assist suppliers to calculate the relevant labour minute value as part of their internal costing p
accompanying tool. The tool allows suppliers to calculate the total monthly labour costs for one worker, i

1. Mandatory wage elements as per minimum wage law (basic wage, dearness allowance, OT r
2. Monetary and non-monetary benefits: holiday payments / paid leave, Earned leave, year-end
3. Labour related Employer on-cost: Maternity leave benefits, insurance, provident fund.

These items will vary from factory to factory and the tool enables manufacturers to insert their actual labo

Dividing the total monthly labour cost for one worker by the total monthly capacity minutes for one worke
minute of labour.
In the tool, we assume a 60-hour work week, which means:
·           Regular working hours: 48 hours per week, which comes down to 208 hours p/m or 12,48
·           Overtime hours: 12 hours per week, which comes down to 52 hours p/m or 3,120 minutes
However, please note that the tool allows to use of actual overtime hours.
In addition, it should be noted that one minute of Direct Labour i.e. one minute of sewing time requires In
control, maintenance, supervision etc. Therefore the Indirect labour time needs to be factored in by estab
Direct- to Indirect Labour.
Example: factory x has a workforce of 60% Direct- and 40% Indirect Labour you divide the Labour Minute
Multiplying the labour minute value (cost of one minute of labour) with the Standard Allowed Minutes (SA
the factory’s efficiency percentage would allow suppliers isolate the direct labour costs as part of the cos
question.

Labour Minute Value X SAM (for product) / efficiency % = Labour Cost (for product)

Building on this, it has been possible to develop an extension to this tool which would enable stakeholder
living wage benchmark on the minute value once factory specific data has been inserted. Comparing this
wage levels gives us insight into the additional cost per product which an implementation of a living wag
Instructions and input fields, calculation and comparison of labour minute values
The file uses all the factory-specific information that you completed in the yello fields on the worksheet 'LMV Tailoring TN'

The yellow fields in the file are your input fields, where you should insert the actual information based on your factory

Factory Name (optional)

Responsible staff (optional)

From the worksheet 'LMV Tailoring TN' you get the following information:

Labour Minute Increment Increment

Wage Level Description
Value (in US$) (in %)
Labour Minute Value
INR 8,364 (based on Legal Minimum Wage) $ 0.0144
Labour Minute Value
INR 14,670 (based on Target Wage) $ 0.0245 $ 0.0101 70.1%

1) 0.0% Optional CHECK: Insert the total amount paid for Direct Labour (i.e. sewing operators) per month in INR.

Optional CHECK: Insert the total amount paid for Indirect Labour (all other labour costs besides sewing, e.g. cutting, QC,
2) 0.0% maintainance, security, cleaning, office staff etc.) per month in INR.

INR 0 0% Must add up to 100%

3) 60.0% Based on the above step 15, insert the total percentage paid for Direct Labour (i.e. sewing) per month in INR.

Based o above step 16, insert the total percentage paid for Indirect Labour (all other labour costs besides sewing, e.g. cutting, QC, maintainance,
4) 40.0% security, cleaning, office staff etc) per month in INR.

100% Must add up to 100%

Once you have inserted all above you should get following information:

Labour Minute Increment Increment

Wage Level Description
Value (in US$) (in %)
Factory Labour Minute Value
INR 8,364 (based on Legal Minimum Wage) $ 0.0240
Factory Labour Minute Value
INR 14,670 (based on Target Wage) $ 0.0409 $ 0.0169 70.1%

Step Value

200 Total number of production workers in the factory (from the worksheet 'LMV Tailoring TN')

5) 50 Insert total number of sewing operators in the factory

774000 Total number of monthly sewing minutes (number of sewing operators x (48 + weekly OT hours) x 4.3 x 60)

Insert the average overhead costs in the factory: rent, fuel, electricity, training, interest payments, depreciation on building, safety
6) measures, etc. per month in USD.
Calculating the cost for a product style

Items provided by the factory Details / Calculations Notes

7) Style Name e.g. Polo shirt Style name or number of the Product

Standard Allowed (sewing) Minutes of the style you want to calculate

8) Standard Allowed Minutes 20.00 per piece.
Efficiency Percentage. Depending on your cost calculation the factory
9) Efficiency Percentage 50% or line efficiency value

Note: if you don't know the SAM and efficiency percentage, simply indicate the actual labour minutes and 100% efficiency above.

10) Fabric Fabric costs per piece (incl. wastage %) in USD

11) Accessories Costs for accessories (buttons, zippers, etc) per piece in USD

12) Polybag, packaging, labelling Total amount per piece for polybag, packaging, hangtag

Total Material Costs $0.000

Labour Cost at LMW at Target Wage

Direct 60.0% $0.577 $0.982

Factory labour minute value x SAM / efficiency %
Indirect 40.0% $0.385 $0.654
Total labour cost $0.962 $1.636
If applicable, amount paid per piece for outsourced processes (e.g.
13) Outsourced processes embroidery, washing, printing) in USD

14) Logistic costs (inbound-outbound) Cost for logistics (inbound and out-bound) calculated per piece in USD

Monthly overhead costs (step 2) divided by monthly sewing minutes

Overhead Cost (electricity, fuel ..) $0.000 -C21) x minutes spent on style (step 4-5).

15) Import tax and duties Cost for import tax and duties calculated per piece in USD

Total Garment Manufacturing Cost $0.962 $1.636

16) Profit Margin 15.0% $0.144 $0.245 Insert your profit margin.

Factory Selling Price $1.106 $1.882

% increase 70.1%

CHECK: insert the FOB price you receive from the buyer (in
17) Date:
USD).

18) Insert the name of the brand (optional)

19) Insert the retail price of the product (in USD)

20) Insert the country of sale (if known)

Factory Labour Minute Value and Product Labour Cost
Tailoring - Tamil Nadu
Exchange rate INR - US$ Legal Minimum Wage Target Wage Benchmark Average OT Hours per week
Note Note
(change to actual) (Unskilled) (Unskilled) (adjust to actual)

It is assumed here that semi-skilled and skilled workers would receive the

70.95 8364 To be updated annually when the minimum wages are adjusted. 14670 same wage as the unskilled workers. Appropriate wage differentation,
however, this would need to be discussed with worker representation and
adjusted in the light-coloured cells.

Skilled "LMW" Semi-skilled "LMW" Unskilled "LMW" Skilled "LW" Semi-skilled "LW" Unskilled "LW"
Wage Item Regular
Overtime Regular
Overtime Regular
Overtime Regular
Overtime Regular working Overtime Regular working Overtime
Explanatory Notes
working hours working hours working hours working hours
hours hours hours hours hours (48h) hours hours (48h) hours
(48h) (48h) (48h) (48h)
6 days a week, 8h/day; 48h/week x 4,33 = 208 h/month
Basic Wage 5,789 5639 5,256 11,562 11,562 11,565
1. Legal Minimum
Wage Dearness Allowance 3,108 3,108 3,108 3,108 3,108 3,105
Actual Overtime per week should be inserted in column " T6 ". Total OT per month is weekly OT hours x 4.33 x 60 minutes.
(Pay for time OT Wage 4,449 4,374 4,182 7,335 7,335 7,335
worked) SubTOTAL 1: 8,897 4,449 8,747 4,374 8,364 4,182 14,670 7,335 14,670 7,335 14,670 7,335
9 festival days. (Gross wage / 26 x 9 / 12)
Public leave 256.64 252.32 241.27 423 423 423
Ranges from 12-15 days earned leave per year. (Gross wage / 26 x #days /12).
Annual/Earned leave 342.19 336.42 321.69 564 564 564 Insert average earned leave of workers PER YEAR:

21 Rupees per worker per year

Labour Wellfare Fund 1.67 1.67 1.67 1.67 1.67 1.67
Factory specific: Not mandated by law.
Casual Leave - - - - - - If applicable, insert total amount paid by the factory for casual leave PER MONTH:

Factory specific: Total monthly amount paid for additional bonuses divided by the number of workers.
Any additional bonuses - - - - - - If applicable, Insert total amount paid by the factory in additional bonuses PER MONTH:

Factory specific: Total monthly amount paid for gratuity divided by the number of workers.
2. Directly Gratuity - - - - - - If applicable, please insert total amount paid by the factory in Gratuity PER YEAR:
Paid
Factory specific: Total monthly amount paid for compensation in case of accidents
Benefits Compensation related
- - - - - - If applicable, Insert total amount paid by the factory in Gratuity PER YEAR:
to accidents
Should not be below 8.3%
Year end Bonus 738 726 694 ### 1,218 1,218 1,218 Insert the ACTUAL percentage paid by the factory for the year-end bonus.

Factory specific.
Meal/Food - - - - - - If applicable,Insert total amount paid by the factory PER MONTH:

Factory specific.
Dormitory/Housing - - - - - - If applicable,Insert total amount paid by the factory PER MONTH:

Factory specific.
Transportation - - - - - - If applicable,Insert total amount paid by the factory PER MONTH:

SubTOTAL 2 1,339 - 1,316 - 1,259 - ### 2,207 - 2,207 - 2,207 -

Factory specific.
Maternity leave /
benefit
- - - - - - If not covered by ESI, please insert total amount in maternity benefits paid PER YEAR:

12% + 1.01% admin charges of basic plus DA

3. Employer Employees Provident
1,157 1,138 1,088 1,909 1,909 1,909
Fund
labour
related Employer State
4,75% of basic + DA
on-cost Insurance 423 211 415 208 397 199 697 348 697 348 697 348

SubTOTAL 3 1,580 211 1,553 208 1,485 199 2,605 348 2,605 348 2,605 348

TOTAL Labour cost per worker in INR

(1+2+3)
11,816 4,660 11,617 4,581 11,108 4,381 19,482 7,683 19,482 7,683 19,482 7,683
208h x 60min for regular working hours.
Monthly capacity minutes 12,480 3,120 12,480 3,120 12,480 3,120 12,480 3,120 12,480 3,120 12,480 3,120 Total OT per month is weekly OT hours x 4.33 x 60 minutes.

Labour Minute Value INR

(row 15/16) 0.95 1.49 0.93 1.47 0.89 1.40 1.56 2.46 1.56 2.46 1.56 2.46
Monthly Labour Cost incl. OT in INR
(sum row 15)
16476 16198 15489 27165 27165 27165

Monthly capacity minutes incl. OT

(sum row 16)
15600 15600 15600 15600 15600 15600

Labour minute Value INR incl. OT

(row 19/20) 1.06 1.04 0.99 1.74 1.74 1.74

Labour Minute Value US$ incl. OT 0.0149 0.0146 0.0140 0.0245 0.0245 0.0245

Distribution per Pay Grade in % 20.00% 40.00% 40.00% 20.00% 40.00% 40.00% 100% Factory specific. Please adjust according to actual factory situation. % must add up to 100%

Weighted Labour Minute Value

$ 0.0144
increase
Relative

(based on Legal Minimum Wage)

Weighted Labour Minute Value
(based on Living Wage) $ 0.0245
Additional Weighted Labour
Minute Value in US$ (row 27-26) $ 0.0101 70%
Instructions and input fields, calculation and comparison of labour minute values
The file uses all the factory-specific information that you completed in the yello fields on the worksheet 'LMV Tailoring TN'

The yellow fields in the file are your input fields, where you should insert the actual information based on your factory

Factory Name (optional)

Responsible staff (optional)

From the worksheet 'LMV Tailoring TN' you get the following information:

Labour Minute Increment Increment

Wage Level Description
Value (in US$) (in %)
Labour Minute Value
INR 4,956 (based on Legal Minimum Wage) $ 0.0095
Labour Minute Value
INR 14,670 (based on Target Wage) $ 0.0245 $ 0.0150 158.4%

1) 0.0% Optional CHECK: Insert the total amount paid for Direct Labour (i.e. sewing operators) per month in INR.

Optional CHECK: Insert the total amount paid for Indirect Labour (all other labour costs besides sewing, e.g. cutting, QC,
2) 0.0% maintainance, security, cleaning, office staff etc.) per month in INR.

INR 0 0% Must add up to 100%

3) 60.0% Based on the above step 15, insert the total percentage paid for Direct Labour (i.e. sewing) per month in INR.

Based o above step 16, insert the total percentage paid for Indirect Labour (all other labour costs besides sewing, e.g. cutting, QC, maintainance,
4) 40.0% security, cleaning, office staff etc) per month in INR.

100% Must add up to 100%

Once you have inserted all above you should get following information:

Labour Minute Increment Increment

Wage Level Description
Value (in US$) (in %)
Factory Labour Minute Value
INR 4,956 (based on Legal Minimum Wage) $ 0.0158
Factory Labour Minute Value
INR 14,670 (based on Target Wage) $ 0.0409 $ 0.0251 158.4%

Step Value

200 Total number of production workers in the factory (from the worksheet 'LMV Tailoring TN')

5) 50 Insert total number of sewing operators in the factory

774000 Total number of monthly sewing minutes (number of sewing operators x (48 + weekly OT hours) x 4.3 x 60)

Insert the average overhead costs in the factory: rent, fuel, electricity, training, interest payments, depreciation on building, safety
6) measures, etc. per month in USD.
Calculating the cost for a product style

Items provided by the factory Details / Calculations Notes

7) Style Name e.g. Polo shirt Style name or number of the Product

Standard Allowed (sewing) Minutes of the style you want to calculate

8) Standard Allowed Minutes 20.00 per piece.
Efficiency Percentage. Depending on your cost calculation the factory
9) Efficiency Percentage 50% or line efficiency value

Note: if you don't know the SAM and efficiency percentage, simply indicate the actual labour minutes and 100% efficiency above.

10) Fabric Fabric costs per piece (incl. wastage %) in USD

11) Accessories Costs for accessories (buttons, zippers, etc) per piece in USD

12) Polybag, packaging, labelling Total amount per piece for polybag, packaging, hangtag

Total Material Costs $0.000

Labour Cost at LMW at Target Wage

Direct 60.0% $0.228 $0.589

Factory labour minute value x SAM / efficiency %
Indirect 40.0% $0.152 $0.393
Total labour cost $0.380 $0.982
If applicable, amount paid per piece for outsourced processes (e.g.
13) Outsourced processes embroidery, washing, printing) in USD

14) Logistic costs (inbound-outbound) Cost for logistics (inbound and out-bound) calculated per piece in USD

Monthly overhead costs (step 2) divided by monthly sewing minutes

Overhead Cost (electricity, fuel ..) $0.000 -C21) x minutes spent on style (step 4-5).

15) Import tax and duties Cost for import tax and duties calculated per piece in USD

Total Garment Manufacturing Cost $0.380 $0.982

16) Profit Margin 15.0% $0.057 $0.147 Insert your profit margin.

Factory Selling Price $0.437 $1.129

% increase 158.4%

CHECK: insert the FOB price you receive from the buyer (in
17) Date:
USD).

18) Insert the name of the brand (optional)

19) Insert the retail price of the product (in USD)

20) Insert the country of sale (if known)

Factory Labour Minute Value and Product Labour Cost
Hoisery - Tamil Nadu
Exchange rate INR - US$ Legal Minimum Wage Living Wage Benchmark Average OT Hours per week
(change to actual)
Note Note
(Unskilled) (Unskilled) (adjust to actual)
It is assumed here that semi-skilled and skilled workers would
receive the same wage as the unskilled workers. Appropriate
70.95 4956 To be updated annually when the minimum wages are adjusted. 14670 wage differentation, however, this would need to be discussed
with worker representation and adjusted in the light-coloured
12
cells.

Skilled "LMW" Semi-skilled "LMW" Unskilled "LMW" Skilled "LW" Semi-skilled "LW" Unskilled "LW"
Wage Item Regular
Overtime Regular
Overtime Regular
Overtime Regular
Overtime Regular
Overtime Regular
Overtime
Explanatory Notes
working hours working hours working hours working hours working hours working hours
(48h) hours (48h) hours (48h) hours (48h) hours (48h) hours (48h) hours

6 days a week, 8h/day; 48h/week x 4,33 = 208 h/month

Basic Wage 4,248 2,448 1,848 11,562 11,562 11,562
1. Legal Minimum
Dearness Allowance (to be adjusted annually).
Wage Dearness Allowance 3,108 3,108 3,108 3,108 3,108 3,108
Actual Overtime per week should be inserted in column " T6 ". Total OT per month is weekly OT hours x 4.33
(Pay for time OT Wage 3,678 2,778 2,478 7,335 7,335 7,335
worked) SubTOTAL 1 7,356 3,678 5,556 2,778 4,956 2,478 14,670 7,335 14,670 7,335 14,670 7,335
9 festival days. (Gross wage / 26 x 9 / 12)
Public leave 212 160 143 423 423 423
Ranges from 12-15 days earned leave per year. (Gross wage / 26 x #days /12).
Annual/Earned leave 283 214 191 564.23 564 564 Insert average earned leave of workers PER YEAR:

20 Rupees per worker per year

Labour Wellfare Fund 1.67 1.67 1.67 1.67 1.67 1.67
Factory specific: Not mandated by law.
Casual Leave - - - - - - If applicable, insert total amount paid by the factory for casual leave PER MONTH:

Factory specific: Total monthly amount paid for additional bonuses divided by the number of workers.
Any additional bonuses - - - - - - If applicable, Insert total amount paid by the factory in additional bonuses PER MONTH:

Factory specific: Total monthly amount paid for gratuity divided by the number of workers.
2. Directly Gratuity - - - - - - If applicable, please insert total amount paid by the factory in Gratuity PER YEAR:
Paid
Factory specific: Total monthly amount paid for compensation in case of accidents
Benefits Compensation related
- - - - - - If applicable, Insert total amount paid by the factory in Gratuity PER YEAR:
to accidents
Should not be below 8.3%
Year end Bonus 611 461 411 ### 1,218 1,218 1,218 Insert the ACTUAL percentage paid by the factory for the year-end bonus.

Factory specific.
Meal/Food - - - - - - If applicable,Insert total amount paid by the factory PER MONTH:

Factory specific.
Dormitory/Housing - - - - - - If applicable,Insert total amount paid by the factory PER MONTH:

Factory specific.
Transportation - - - - - - If applicable,Insert total amount paid by the factory PER MONTH:

SubTOTAL 2 1,107 - 837 - 747 - ### 2,207 - 2,207 - 2,207 -

Factory specific.
Maternity leave /
benefit - - - - - - If not covered by ESI, please insert total amount in maternity benefits paid PER YEAR:

3. Employer 12% + 1.01% admin charges of basic plus DA

Employees Provident
957 723 645 1,909 1,909 1,909
labour Fund
related 4.75% of basic plus DA (paid over regular + OT wages)
Employer State
on-cost Insurance
349 175 264 132 235 118 697 348 697 348 697 348

SubTOTAL 3 1,306 175 987 132 880 118 2,605 348 2,605 348 2,605 348

TOTAL Labour cost per worker in INR

(1+2+3)
9,770 3,853 7,380 2,910 6,583 2,596 19,482 7,683 19,482 7,683 19,482 7,683
208h x 60min for regular working hours.
Monthly capacity minutes 12,480 3,120 12,480 3,120 12,480 3,120 12,480 3,120 12,480 3,120 12,480 3,120 Total OT per month is weekly OT hours x 4.33 x 60 minutes.

Labour Minute Value INR

(row 15/16)
0.78 1.23 0.59 0.93 0.53 0.83 1.56 2.46 1.56 2.46 1.56 2.46

Monthly Labour Cost incl. OT in INR

(sum row 15)
13622 10289 9178 27165 27165 27165

Monthly capacity minutes incl. OT

(sum row 16)
15600 15600 15600 15600 15600 15600

Labour minute Value INR incl. OT

(row 19/20) 0.87 0.66 0.59 1.74 1.74 1.74

Labour Minute Value US$ incl. OT 0.0123 0.0093 0.0083 0.0245 0.0245 0.0245

Distribution per Pay Grade in % 20.00% 40.00% 40.00% 20.00% 40.00% 40.00% 100% Factory specific. Please adjust according to actual factory situation. % must a