Labor Cost in Analytical Cornerstone

Fastmarkets’ labor cost methodology in Analytical Cornerstone (AC) is designed to provide a realistic, comparable, per‑ton labor cost estimate across all pulp, paper, board, and integrated mills globally. AC models both hourly and salaried labor categories, allocates labor across processes, and adjusts for differences in man‑hours per ton between mills.

1. Basis of Labor Cost Calculation

Labor cost is calculated on the basis of averaged capacity utilization, using modeled mill conditions rather than maximum design rates. This ensures labor cost per ton reflects realistic levels of activity.

For integrated mills:

• Staffing for the pulp line is included.
• Overall mill staffing is split between:
  • Paper machine operations (PM)
  • Pulping / recovery line
  • Other mill processes

2. Manning Data and Flow Sheet Summary

The Summary section of the mill flowsheet shows:

• Total number of people working on-site, broken down into:
  • Machine operators (hourly)
  • Maintenance technicians (hourly)
  • Salaried staff (monthly, both exempt and non‑exempt*)
• This staffing data is then converted into:
  • Man‑hours per ton produced
  • Using annual regional man‑hours (varies by region due to labor laws, holidays, shifts)

These steps ensure apples-to-apples comparability across countries with different wage structures and working-time regulations.

*Note: Exempt and non-exempt are US terminology. Non-exempt are employees that perform work that is subject to overtime provisions if they work overtime, for example an accountant. Exempt employees are exempt from overtime laws (supervisors, managers).

3. Converting Staffing Into Cost

Step 1 — Man-hours per ton

Total staffing is divided by annual production to derive man‑hours per ton.

Step 2 — Apply hourly wage rates

For hourly staff, AC uses:

• Operations labor wage rate
• Maintenance labor wage rate
• Number of hours worked per year (region‑specific)
• Days of operation per year (e.g., 357 days for pulp & paper)

For salaried staff, AC uses:

• Converts monthly salary into equivalent hourly rate
• Distinguishes exempt (overtime exempt) vs. non‑exempt (eligible for overtime)
• Applies regional overtime rules to ensure correct cost per hour

Step 3 — Build per‑ton labor cost

Man‑hours per ton × appropriate hourly rates → $ / ton labor cost

For multi‑grade mills, labor cost is then proportioned across products based on:

• Product mix
• Fiber furnish mix
• Required labor per grade

4. Components of Labor Cost in AC

Hourly Labor (2 components)

1. Operations labor cost
   – Operators running machines and equipment
2. Maintenance labor cost
   – Millwrights, electricians, mechanical technicians, etc.

Variables influencing hourly labor cost:

• Average regional wage rate
• Hours worked per year
• Days of operation
• Benchmark maintenance man‑hours per ton

Salaried Labor (2 components)

1. Exempt salaried labor
   • Typically supervisors, engineers, administrative staff
   • Not eligible for overtime
2. Non‑exempt salaried labor
   • Paid monthly but eligible for overtime
   • Overtime rules vary by region

These distinctions ensure that each employee type is costed accurately.

5. Benchmark Adjustments for Maintenance Labor

If a mill’s actual maintenance man‑hours per ton differ from benchmark averages:

• Above benchmark → AC increases maintenance materials to reflect higher complexity/maintenance intensity
• Below benchmark → AC reduces maintenance materials accordingly

This ensures that overall maintenance cost realism is preserved even when labor inputs deviate from typical values.

6. Labor Loaders

The model also applies labor loaders, which account for:

• Payroll burden
• Benefits
• Social security
• Taxes
• Regional employment overheads

Labor loaders vary by:

• Country
• Employee category (hourly vs salaried)
• Exempt vs non‑exempt status

These loaders convert raw wage rate into fully‑loaded labor cost per hour.

7. Summary Flow

Staffing → Man‑hours/ton → Hourly rates → Loaded cost → $/ton labor cost

For integrated mills:
Staff is allocated across pulp line + paper machine + support functions, ensuring the final labor cost reflects the mill’s actual configuration.