General Contractor, Payroll & Accounting, Subcontractor —

How to Calculate Construction Labor Cost

RhumbixMarch 02, 2023 • 5 min read

As a construction contractor, calculating the value of your work comes with its challenges. You have to account for labor, materials, and equipment, to name a few.

Costs can become a bit more confusing when working with a crew or an unforeseen problem arises. For example, have you ever given an incorrect quote on a project? It’s never fun to admit to a client when you’ve made a mistake that can cost them more money.

If you are looking for a simplified method to determine your construction labor cost, you’re in the right place. In this article, you’ll learn some helpful tools and formulas that will make your work life a little easier.

What’s your base rate?

Knowing how to develop accurate quotes for your projects will help your profit margins stabilize. You won’t have to worry about upsetting your customers or even paying yourself too little.

Your base rate is the unit price that’s established for labor. This is a good place to start on any project because what you spend on supplies will always be different.
Think about the size of your average crew while determining your base rate. In our example, we’re going to work with a crew of three.

The first employee is the lead. The second is the journeyman. And the third is an apprentice.

The rate for the three works might be:

These wages are close to standard in the construction industry. But, they can be adjusted if the rates are different in your area.

Following this example, your base rate is going to be $80 per hour.

Determine the labor burden

The labor burden is the cost of each employee outside of their hourly wage. Included in calculating the labor burden are the employees’ benefits packages paid by the company. The formula for finding each employees’ labor burden is fairly simple. It uses the employees’ hourly wages, the number of hours they are available to work per year, and the number of days they can be out each year. But, of course, these days are for things like vacation and illnesses.

We’ll use our $20 an hour employee for this example.
The person can work 2,080 hours each year, and they can be out for 15 days due to holidays and the sick/vacation days they are given.

Multiply the 15 days by 8 hours (or whatever a single shift is).
Then subtract the total by the 2,080 hours they’re able to work each year. This will give you the number of hours they are actually working annually.

The formula should look like this: 15×8= 120. 2,080-120= 1,960.

Your records should show you the yearly costs of having an employee. Such as payroll taxes, training, insurance, and other benefits.

Here are numbers we can plug in for this example:

  • Payroll taxes- $2,000
  • Insurance- $1,000
  • Benefits- $2,000
  • Supplies and other expenses- $5,000

Add these costs together, and you have a $10,000 labor burden. Next, do the same calculations for each employee on your crew to determine the base rate for the entire team working on the project.

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Find the labor rate

After you’ve determined your team’s base rate, you need to know its labor rate. The labor rate pricing is determined by adding the hourly rates of the employees who will be working on a single project.

That number should then get multiplied by the labor burden and markup. Always round up to the next dollar in these scenarios. Using a nice, round number always makes it easier.

Having these calculations on hand will help you accurately determine the labor cost for a project much quicker. In addition, you can keep examples of different combinations because not every project will involve all the same crew members.

Determining the construction labor cost

Now, let’s see how knowing your base rates can help determine the construction labor cost.

Let’s say, for instance; you have three men working on a project that will last 6 weeks. They are working 8-hour shifts, which will translate into a 40 hour work week.

Crew’s hourly rate X 3 (amount of workers) X 6 (number of weeks) X 40 (hours per week) = cost of the project.

This formula will give you the labor cost of a project for your crew. This number can be provided as a standard base before adding the costs of materials and other factors known to change on a project-by-project basis.

Keeping these formulas on hand won’t just help you deliver estimates speedily. Instead, it will help you develop a more accurate way of scheduling and meeting your financial goals.

Software is an easier way

If manually completing these and other calculations for every project isn’t your idea of a good time, there are some programs available for you to use. For example, accounting and timekeeping software makes your job easier to manage projects, teams, and running a construction business.

Some of the features and benefits include:

  • Less time spend on time cards
  • Mobile apps for all crew members
  • An ability to see where you’re making and/or losing money
  • Track labor and costs according to your estimates
  • Optimized productivity

Timekeeping software also helps decrease human error, a benefit that’s especially important if you’re recently getting started in your line of work. If you’re wondering if it can help you and your team, request a free demo.

Calculating your construction labor cost isn’t something that should be taken lightly. It can either make or break your business or cause you to make an expensive mistake.

Improve your productivity and performance by contacting us. 

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