In one sentenceThe effect of paying an hourly wage different from the standard wage, calculated on actual direct labor hours.
Simply put
It answers the question: did you pay more or less per labor hour than you planned? A higher wage is an unfavorable variance, and a lower one is favorable.
Its causes include using a higher-paid worker than needed, overtime at a higher rate, or employing less experienced workers at a lower wage (which may raise the hours afterward).
Worked example
A confectionery factory set a standard wage of 40 SAR per hour and used 520 direct labor hours at an actual rate of 38 SAR per hour.
Actual hours520 hours
Actual rate − Standard rate38 − 40 = −2 SAR
Variance−2 × 520 = −1,040
Labor rate variance (wage below the standard)1,040 SAR favorable
Formula: (Actual wage rate − Standard wage rate) × Actual labor hours
Don't confuse it with
Labor efficiency varianceIt measures the number of hours used, not the price per hour.