Employee Cost standard clarifies classification, measurement, assignment and disclosure rules for wages, benefits, variances and exclusions.

Guidance under Cost Accounting Standard 7 (Employee Cost) lays down principles for classification, measurement, assignment, presentation and disclosure of employee cost in cost statements. Employee cost includes wages, salaries, allowances, bonus, incentives, employer contributions, welfare benefits, retirement and separation benefits, while excluding imputed costs, contractor payments, prior-period dispute payments, penalties, damages, and material abnormal costs. The guidance distinguishes direct and indirect employee cost, and provides for allocation of benefits and other employee-related costs on appropriate bases such as employee numbers, cost centres, time consumed or hourly rates. Direct employee cost is presented separately, indirect employee cost under relevant overheads, and material items must be disclosed.

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