The burden for labor and machinery rate might be too high to allow the companies to make profits in their resident countries.
The labor burden is the total indirect costs expressed as a percentage of the direct costs. For example:. Other companies use excel estimating software. However, it is possible to eliminate these time-consuming processes and complete the details needed in job costing using construction estimation software.
You need to develop good estimator skills for computing labor costs. Labor costs are classified into distinct groups: direct and indirect costs. Direct costs refer to the wages paid to an employee, but the indirect costs encompass but are not limited to:.
The first step is calculating the salary costs, as you have to pay a certain percentage of indirect costs to cover that person for every dollar you spend. Calculating the indirect costs is the most taxing bit when calculating the labor burden, but necessary. You can calculate these costs using financial tools or by contacting a tax professional. Having identified all the indirect employee-related costs, you can go ahead to calculate an employee's labor burden.
The next step is calculating the full costs for which an employee is paid but does not work, such as Labor Day, New Year, Christmas, etc. Other periods include vacation days, paid time off, sick leave, and personal days.
There are also training days for seminars for professional development. From here, you can fully account for the actual working hours by subtracting the paid leave hours. There is also general administrative time spent on production work, such as company meetings, reporting, and time in the field.
Now we have the total working hours and the total production hours. We can calculate the labor burden rate as a percentage of the total working hours against the total production hours.
However, we cannot stop here. We need to factor in the indirect costs we mentioned above, such as Payroll Taxes, Benefits, Tools, etc. We now need to compute the total costs by summing up the indirect costs with the direct costs. After this, we need to calculate the labor burden as a percentage of the additional costs to the total costs. After crunching all the numbers, the next step is to check the construction estimate to ensure profitability.
Having a fast and efficient way of checking your project's price will save you money in the end. However, remember that this is not the actual pricing stage, but it is a construction estimate. You are merely verifying your company's budget.
Before making any job estimates, you need a set of accurate plans. Without plans, you can only give a rough approximation for the job. After reviewing the drawings, you can then proceed to unit cost estimation. This is done by compiling all line items for a job, checking their costs in the construction unit cost database , attaching unit costs to them, and computing total numbers. Various contractor estimating software can get you off the ground.
The estimated costs mostly include things like the costs of goods. As an employer, calculating your labor burden is important so that you know exactly what to expect. Determine how much you spend on wages and salary. If you have hourly employees, this can be calculated by multiplying the total number of hours worked by the hourly rates of the employees. If you pay salary, simply add up the salaries of all of the employees you have. Multiply the wages you pay by the payroll tax rates that you have to pay.
These taxes include items such as Social Security, Medicare and unemployment taxes. For example, for your portion of Social Security and Medicare, you pay 7. Add in other costs that you incur for each individual employee. These items may include paid vacation time, sick days and health insurance premiums for qualified employees.
Direct labor costs are out. Obviously, payroll taxes are fixed—but savings may be found in other indirect costs. For example, if you notice machine maintenance costs rise with every new estimate, it may save you in the long run to buy a replacement. Or a good buyer may find savings with mobile phone plans, tools, insurance and vehicle repairs. Start and stop times are automatically reported to you daily, no paperwork required.
The software also allows you to see a breakdown of who is doing what and how long it takes. Reports can be generated per location or employee. This gives you the opportunity to accurately see how time is being spent so you can keep productivity high—and potentially provide a paper trail to a client looking for a detailed breakdown.
These reports are also essential to tracking overtime. Unforeseen overtime costs can quickly inflate your budget. With a time tracking app, you coordinate when overtime needs to be paid and when it and other costs need to be curbed, helping to keep you on budget. With equipment maintenance being an important indirect cost, those costs need to be monitored as well. Equipment tracking lets you see every time a bulldozer, jackhammer, concrete cutter or scaffolding was used on a project.
By tracking their use, you can see which equipment may need more maintenance. It has been found that 10 minutes is stolen per day, per employee via paper time cards.
Your employees may not be out to get you. Instead, these stolen hours are likely due to hasty hour-rounding or mistakes. A mobile app reduces human error like misrepresented times and ineligible writing.
Digital time cards reduce costly mistakes by always tracking the exact times your employees work.
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