construction accounting, Construction Financial Management Association (CFMA), construction technology —

Calculating Construction Labor Costs: A Guide for Contractors

PeritusMay 14, 2024 • 3 min read

As a construction contractor, accurately determining the cost of your services can be challenging. It would be best to account for various factors, such as labor, materials, and equipment. Moreover, costs can get complicated with a crew or unexpected issues, like providing an incorrect quote, leading to difficult conversations with clients about additional charges.

This article aims to simplify the process of calculating construction labor costs. You will discover valuable methods and formulas that can streamline your work.

Establishing Your Base Rate

Developing accurate quotes is crucial for stabilizing your profit margins and maintaining customer satisfaction. The base rate, or the standard price for labor, is an excellent starting point, but it will change based on the project since material costs differ.

Consider the typical size of your crew when setting your base rate. For instance, let’s assume a crew of three:

  • Apprentice: $15.00 per hour.
  • Journeyman: $25.00 per hour.
  • Lead: $40.00 per hour.

These rates are typical in the construction industry but can be adjusted based on local standards. The collective base rate would be $80 per hour in this example.

Calculating the Labor Burden

The labor burden includes additional costs per employee beyond their hourly wages, such as benefits packages. To calculate this, use the following formula: multiply the total days off (including vacations and sick days) by the daily hours worked, then subtract this from the total annual work hours. For example, using an employee earning $20 per hour:

  • Total work hours per year: 2,080
  • Days off (15 days): 120 hours
  • Actual work hours per year: 1,960

Include annual costs like payroll taxes, insurance, training, and other benefits to find the total labor burden:

  • Insurance: $1,000
  • Payroll taxes: $2,000
  • Benefits: $2,000
  • Supplies and other expenses: $5,000
  • Total labor burden: $10,000

Perform this calculation for each crew member, and you should understand your base rate for the entire construction team.

Determining the Labor Rate

After establishing your team’s base rate, add the hourly rates of the employees working on a project, then adjust for labor burden and markup. It’s practical to round up to the nearest dollar for simplicity.

Project Labor Cost Calculation

Using the base rates, calculate the labor cost for a project. For example, if three workers are involved in a six-week project, working 40-hour weeks:

  • Hourly rate X 3 workers X 6 weeks X 40 hours = Total labor cost

This formula provides a standard labor cost and a baseline before adding material costs and other variable expenses.

Streamlining with Software

Numerous software solutions are available for those who prefer only manually calculating some details. These tools can handle accounting and timekeeping, improve management, and reduce errors, which is particularly beneficial for new contractors. Features often include:


Calculating construction labor costs is critical for your contracting business’s success and financial stability. These methods and possibly integrating software solutions can enhance productivity and performance. Feel free to reach out for further assistance or a demo of how software can help.

Related Topics

  • Timekeeping and Payroll Software
  • Direct vs. Indirect Labor Costs
  • Strategies to Reduce Labor Cost

Always seek construction accounting and finance experts to help your business succeed. We hope these tips help you understand the basics of accurately estimating and managing labor costs, ensuring the financial health of your projects and business.