Salaries and Wages
Employee compensation expense in operating performance
Salaries and wages represent cash and accrued compensation paid to employees for their work during a period. Depending on the company and the role of employees, these costs can appear in cost of revenue (direct labor) and/or operating expenses (SG&A, R&D).
Why Classification Matters
Labor costs classified in cost of revenue affect gross margin, while labor classified in operating expenses affects operating margin. Two similar companies can have different margin profiles if they classify labor differently based on business model and accounting presentation.
What to Look For
- Growth in wages relative to revenue (productivity signal).
- Mix shift between direct labor (COGS) and overhead labor (SG&A).
- One-time items (severance, restructuring) presented separately.
Key Takeaways
Salaries and wages are a core operating cost that can sit in COGS or operating expenses.
Classification influences gross and operating margins, so compare peers carefully.
Salaries and Wages
Employee compensation expense in operating performance
Salaries and wages represent cash and accrued compensation paid to employees for their work during a period. Depending on the company and the role of employees, these costs can appear in cost of revenue (direct labor) and/or operating expenses (SG&A, R&D).
Table of Contents
Why Classification Matters
Labor costs classified in cost of revenue affect gross margin, while labor classified in operating expenses affects operating margin. Two similar companies can have different margin profiles if they classify labor differently based on business model and accounting presentation.
What to Look For
- Growth in wages relative to revenue (productivity signal).
- Mix shift between direct labor (COGS) and overhead labor (SG&A).
- One-time items (severance, restructuring) presented separately.
Key Takeaways
Salaries and wages are a core operating cost that can sit in COGS or operating expenses.
Classification influences gross and operating margins, so compare peers carefully.
Related Terms
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