Since you have Base Labor Result on Attendance selected, the labor time between 12:00 and 13:00 will be excluded from the labor time result if the attendance time is also included for this period. I.e., depending on how you have defined the employee schedule and calculate the attendance time, the labor time will be calculated the same way.

If you clear this check box the logic will instead use the value in the Calendar Consideration field. An example with a schedule from 8:00-17:00 with break between 12:oo and 13:00 below.

Understood, but where should these breaks for both labor and machine be set up?

Labor Time uses either the Employee Schedule, Labor Class Calendar or Person Resource Calendar

For machine time, the work center calendar is used