A generally accepted axiom in the construction industry is that of the three major cost categories of a construction estimate, the material, the labor, and the overhead, estimating labor represents the greatest risk to the contractor. This is often true because there can be many potential influences that are outside of a contractor’s control that can affect worker performance. Because of the added risk, the estimator should take additional care when preparing a labor cost estimate and seek to anticipate and evaluate any potential issues that may arise and develop contingencies for dealing with those potential issues.
On the surface, the formula and calculations for determining labor costs are quite simple, however, buried within that simplicity can be a myriad of other issues which can make the challenge significant. In its simplest terms, calculating labor cost is a matter of establishing two variables. The first is a basic unit or quantity that represents the particular material or process being estimated and determines the quantity of time that it will take for the material installation or construction process. This is known as the production rate. The second is allotting a financial cost to the material installation or construction process. This is known as the wage rate. The basic formula for estimating labor is to multiply the production rate by the wage rate.
The remaining balance of this chapter will explore the numerous elements that must be taken into consideration when calculating labor cost beginning with the production rate.
The steps to calculate your production rate are to 1) determine the basic unit of labor, 2) determine the crew, 3) determine the productivity factor, and then 4) calculate the work hours.
The first element in estimating the production rate is to determine a basic unit of labor. This is the measurement that will be used to quantify the process to be estimated. A wide variety of measurements could be possible, with some more appropriate than others for a given situation. For example, two possible methods of estimating concrete footings could be cubic yard or lineal footage. Either could be appropriate depending upon the circumstances. Footings for residential construction are often similar sizes such as 16 inches wide by 8 inches tall or 18 inches wide by 9 inches tall. These footings typically are formed using 2 × 8 or 2 × 10 material on each side and have two pieces of continuous horizontal rebar. Vertical rebar is also placed at standard distances (Figure 4-1).
In this case, it may be desirable to estimate the footing at lineal foot cost as material and labor would be similar for most installations.
Footing for commercial construction, such as those shown in Figure 4-2, can vary widely by size, material, and function. These footings have multiple variations in size and profiles with multiple arrangements of rebar, and it may be more appropriate to estimate these footings by cubic yard quantity.
Several important factors should be taken into consideration when determining the crew that will perform a specific task. Considerations would include the specific set of skills needed to perform the operation, the optimum number of members in the crew, and the job description for each crew member.
Specialized skill sets are needed to perform most construction operations, and optimal crew configuration would include individuals with the desired skill sets. Information, such as that contained in cost data manuals, can assist in determining crew configurations. NCE Figure 4-1 shows an example from the crew database in the National Construction Estimator with examples of job descriptions, number of crew members, and average crew cost per hour.
Another element in determining the production rate is the crew productivity factor. The productivity rates of a crew can vary dramatically between crews and even within the same crew in different circumstances. Productivity of workers that is less than ideal will require an increase in the number of hours that the work requires, and a productivity factor greater than the norm will mean a decrease in the labor hours. Some of the variables that contribute to the productivity factor of crews include the availability of workers, climate conditions, working conditions, and other factors.
The construction industry is sensitive to economic factors and goes through cycles of high prosperity and times that are less so. These up and down cycles also have an effect on worker productivity. For example, in times of high economic prosperity, there tends to be shortages of workers in the industry as companies compete for high-skilled labor. During these times, high wages also draw more workers into the industry, however, these workers tend to have less training and fewer skills. As a result, they work slower, demonstrating lower levels of productivity. The opposite is true in times of less economic prosperity. Workers compete for fewer jobs, and those with less training and more marginal skills tend to drop out of the industry as unemployment rates rise. Typically, the workers left in the industry are those with higher levels of training and skills and tend to have higher productivity rates.
Construction work is often outside and can be subject to effects of the weather. Cold temperature, rain, and snow can have a big impact on many construction procedures and projects. For example, concrete setting is subject to temperature. The colder the temperature, the slower the hardening process. Ambient air temperatures below 40 degrees can significantly slow down or stop the hydration process. Concrete that is allowed to freeze before it reaches a strength of 500 psi will be irreparably damaged and will never achieve sufficient strength. Additional time and protection measures will need to be accounted for when placing concrete in cold conditions.
The opposite is also true of hot or windy conditions. Hot, dry, or windy conditions can evaporate the water from the concrete mix before it has time to complete the hydration process.
Working conditions, such as number of workers on the job, working space, high rise construction, material on hand, and traveling to the job can also affect construction productivity.
Too few or too many workers can have an adverse effect on construction productivity. Too few workers can lead to overtasked workers and a loss of productivity. Workers, at times, can put in long periods of work hours, but continued overwork will lead to a host of problems as workers are overworked. This includes not only a general loss of productivity, but also a loss of quality in their work. Overworked employees also have more injuries and other health care costs and take shortcuts that can lead to accidents or injury.
Too many workers on a job can have a negative effect that leads to many of the same problems. It can lead to inefficiencies as workers get in each other’s way, or the work of one individual conflicts with the work of others. This is often known in the industry as the crowding, or stacking, of trades. In addition, too many workers can lead to safety violations and injuries.
Lack of sufficient working space where the worker is confined can lead to inefficiency.
High rise construction can also lead to worker inefficiency. Typically, there are limited means to access a building’s higher levels while under construction. High rise projects can have hundreds or thousands of workers on a job with limited access to the higher floors. In addition, there are time issues with getting material to the higher floors as material placement conflicts for the limited resources.
Delivery delays or disorganized project scheduling can lead to worker inefficiency as they wait on materials. The opposite can also be true. Material that is on the job site before it is needed can become an obstacle to work around.
Projects at remote locations or that are far from the source of worker supply may also cause inefficiencies as workers need time to travel to the job site. The contractor often may be required to pay for travel time, either one way or both ways, as the workers travel to the job site. This factor will need to be included as labor costs are determined.
Other factors can contribute to worker inefficacy. Studies have shown that on average, workers accomplish only 30 to 50 minutes of work per hour. Factors that contribute to this include worker breaks such as coffee breaks, bathroom breaks, water breaks, or lunch breaks that start early or stop late. Other factors such as worker conversation, discussions about the “big game” or the “big date” last night can contribute to less than a full time period of work.
Daily startup and cleanup activities also contribute to worker inefficiencies, as workers get tools and materials on hand, get organized to start the day, and then get tools cleaned up and put away at the completion of their shift. Effective job organization can lead to a decrease in inefficiencies.
The formula for calculating total work hours should include a productivity factor as part of the equation. This basic formula would be
NCE Figure 4-2 shows an example of the cost associated with board forming and stripping concrete footings. The Craft@hrs information shows that Crew B2 can form footings at a rate of 0.115 hours per SF. The introduction identifies the actual unit as square foot of contact area (SFCA), and it explains that when forms are required on both sides, the surface area of each side will need to be included.
Figure 4-6 shows an example of a typical 8x16 residential concrete footing. The forms are on both sides and are eight inches tall. The square foot of contact area for one side of the footing would be determined by converting the area of one lineal of footing form to a decimal form with the following calculation:
The quantity would be doubled to account for the forms on both sides and would result in the following quantity:
Using an example of 100 lineal feet of footings, the total square feet of contact area would be
Crew B2 can install the footings at a rate of 0.115 hour per SFCA. The number of hours required to install the 100 lineal feet of footings would be
This would be the ideal number of man-hours needed to complete the project. If a productivity factor of 80% were included to account for a factor, the actual number of man-hours would be
NCE Figure 4-1 shows that crew B2 has three crew members, one laborer, and two carpenters. This means that it would take crew B2 6.39 hours to complete the footing formwork as shown by the following calculation:
Calculating production using these methods can be invaluable, however, the most accurate method of estimating labor is taken from historical data based upon crews’ past performance in a similar situation and should be a focus of the construction estimator’s efforts.
The second half of the equation in determining construction labor costs is to determine the employee wage rates. While cost data manuals can be helpful in establishing wage rates, much more accurate figures can be obtained when actual employee wage rates are known. This is more complex than simply applying an employee’s hourly pay rate to the equation. True employee wage costs are an aggregate of many factors, and each of those factors need to be taken into consideration when determining total employee wage costs. Another name for total employee wage cost is known as burdened labor costs.
Burdened labor costs are typically separated into three main cost categories. These categories are employee wages, fringe benefits, and employer wage taxes. The combination of fringe benefits together with employer wage taxes is often known as “labor burden,” and the term “burdened labor cost” is defined as the employee wages plus the labor burden. All three of the elements must be included together if true total employee cost is to be known.
Total burdened labor costs are all of the expenditures that an employer has as a result of using employees. This is much different than employee take-home pay, which is the amount that the employee has left over when all deductions and payroll taxes are subtracted from their gross pay. Figure 4-7 shows a graphical representation of this concept with the employee’s take-home pay on the left end of the scale and the total employer burdened labor costs on the right end of the scale, with the employee’s hourly pay rate between. In the example, the employee is paid at a rate of $10.00 per hour. His take-home pay might be around $7.00 or less an hour, and the total cost to his employer might be around $18.96 per hour. The $7.00 employee take-home pay amount is just an estimate because the actual amount would vary based upon a number of factors outside of the employer’s control. The three categories of cost, employee wages, fringe benefits, and employer payroll taxes are important for the construction estimator to understand.
The Fair Labor Standards Act (FLSA) requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and a half the regular rate of pay for all hours worked over 40 hours in a workweek. The FLSA provides an exemption from both the minimum wage and overtime requirements for employees employed as bona fide executive, administrative, professional, and outside sales employees. These are known as salaried or exempt employees.
There are specific requirements mandated by law for employees to be classified as a salaried or exempt employees. The United States Department of Labor sets the following standards for workers to be classified as exempt or salaried employees:
“To qualify for exemption, employees generally must be paid at not less than $455* per week on a salary basis. These salary requirements do not apply to outside sales employees, teachers, and employees practicing law or medicine. Exempt computer employees may be paid at least $455* on a salary basis or on an hourly basis at a rate not less than $27.63 an hour.
Being paid on a ‘salary basis’ means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Subject to exceptions listed below, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Exempt employees do not need to be paid for any workweek in which they perform no work. If the employer makes deductions from an employee’s predetermined salary, i.e., because of the operating requirements of the business, that employee is not paid on a ‘salary basis.’ If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.”
In the construction industry, salaried employees are usually management employees such as executives, project managers, project engineers, and superintendents. Salary employees can be paid on a weekly, biweekly, monthly, or other basis. Figure 4-8 shows an example of a salaried employee’s pay, which is based upon a monthly wage.
Most craft and trade employees are classified as hourly employees, and their compensation is determined by several factors, including the wage rate of regular and overtime hours and the number of hours worked.
Regular wages represent the amount that an employee is compensated for working 40 hours or less per week. The monetary amount of regular wages paid to employees is subject to a wide range of variables including specific market and economic conditions. The specific rate can be determined by negotiations or other factors that are outside of the contractor’s control such as union wages or what is known as “Davis-Bacon” wages.
Negotiated wages are determined by negotiation between the employer and the employee and can be subject to wide variables. Both the employer and employee have freedom to determine what the rate will be. Highly desirable potential employees or those whose skills are in high demand can usually command higher wage rates than those who are less desirable or in less demand.
Union wages are determined by negotiations between the representing union and the contractors. The wages set for union employees are based upon their job classification and skill level, such as apprentice, journeyman, and master. Union wages are typically higher than negotiated. In addition, unions are typically responsible for training their employees.
Davis-Bacon wages are also known as “prevailing wages.” There is a wage standard set by the federal government on government funded projects. The Department of Labor researches labor cost in specific locations and publishes those rates for the locations. The prevailing wage is usually defined as a per-hour wage. In addition to the per-hour wage, a cash equivalent value of benefits is also specified that adds to the cost of the wage. For example, a Davis-Bacon hourly wage could be set at $30.00 per hour. In addition to the hourly wage, a supplementary $8.00 per hour fringe benefit wage could be added, making the effective wage rate $38.00 per hour.
Pay periods for hourly employees can be weekly, biweekly, monthly, or other. However, regardless of the pay period, the wages are calculated on a 40-hour workweek basis. This is typically based upon a five day, eight hours per day, 40-hour workweek schedule, but other schedules could also apply. Estimating the cost for regular wages is based upon the 40-hour workweek and a 52-week year, which equals 2,080 hours per year. Figure 4-9 shows the yearly regular wage costs for a non-exempt employee who earns $10.00 per hour and works full time at 40 hours per week.
Wages for work that total 40 hours or less per week are classified as regular wages, and wages for work that exceed over 40 hours in a given week are classified as overtime wages.
Overtime wages are paid for non-exempt employees whenever they work for more than 40 hours per week. Overtime wages are calculated using 1 ½ times the employee’s regular wage. This is commonly known as time and a half. Figure 4-10 shows the overtime calculations for the employee in Figure 4-9 who worked 12 weeks of overtime in the preceding year and averaged 10 hours of overtime in each of those 12 weeks.
Other wages include taxable employment compensation outside of regular and overtime wages. Some examples of other wages include bonuses, allowances, and cash equivalents.
Bonuses: Bonuses are cash payment to employees outside of regular employment compensation. Examples of bonuses could include a bonus for exceeding a production goal or a Christmas bonus. They can be paid on a one-time basis or more often as the company policy specifies.
Allowances: Allowances are cash payments given to an employee to cover the costs of some expenses. For example, a construction superintendent who is required to use their own vehicle to visit different job sites may be paid a monthly allowance for the use of their vehicle. Allowances are different from mileage reimbursements in which the mileage is recorded and the employee is reimbursed at a set rate (usually established by the IRS). Reimbursements are not considered a form of taxable wages, whereas allowances are. This means that they are subject to federal tax withholding requirements.
Cash Equivalents: Cash equivalents are payments that are made to the employee in lieu of a fringe benefit that is due. This type of wage can be used on federally funded construction projects where contractors are required to pay the “prevailing wage,” which includes both a per-hour wage and an additional fringe benefit requirement. With these types of project wages, the contractor can choose to establish an appropriate benefit program such as health insurance, retirement programs, or 401K benefits, or they may choose to pay the employee the cash equivalent of the benefit. These payments are considered income and subject to tax withholding requirements. Figure 4-11 shows an example of other wage calculations for an employee who receives a $500.00 per year Christmas bonus and a $250.00 per month truck allowance.
The total taxable wage of an employee is the sum of the employee’s regular wage, overtime wage, bonuses, allowances, and cash equivalents. Figure 4-12 shows the total taxable wages for an employee who is paid $10.00 per hour, works 120 additional hours per year overtime, receives a $500.00 Christmas bonus, and $250.00 per month truck allowance. This employee’s total taxable wages would be $26,100 per year.
Fringe benefits are compensation items that are provided to employees as a result of their employment. Fringe benefits can be defined as either a taxable or non-taxable fringe benefit. The distinction between taxable and non-taxable is set by the law and defined by the Internal Revenue Service. Fringe benefits are considered taxable unless they are specifically defined as non-taxable under the law.
One example of taxable fringe benefits could include holidays, vacations, or sick leave. It is considered a taxable fringe benefit because employees are paid for days that they do not work and that pay is subject to taxes.
Paid holidays are time off that employees are given from work to celebrate specific national or local holidays for which they are paid their regular wage.
Paid vacations are time given off to employees for which they are paid while vacationing. Company rules often establish vacation policies, such as employees accrue a number of days’ vacation per year based upon their years of employment. For example, a company may have a policy that requires employees to work for one year before they qualify for paid vacation days. After a year, they may qualify for a minimum number of vacation days per year, such as five per year. Each additional two years of employment qualifies the employee for an additional paid vacation day per year up to the company maximum of 10 days’ vacation per year.
Sick leave is also paid time off given to employees when they are sick. Companies may have ridged standards for what qualifies as sick leave, or they may have more relaxed policies that provide more employee discretion when taking sick days.
Employees are paid for holidays, vacations, and sick leave on a 40-hour per week basis. Overtime usually cannot be collected at the same time as receiving pay for these times off. The cost to employers for providing these benefits to their employees should be recouped throughout the year by adjusting costs to clients by using the concept of billable hours.
Employee pay for holidays, vacations, and sick leave is typically not billable to a specific job. The cost should be accrued throughout the year by billing the cost as part of the labor burden. This is done by first calculating the number of hours that an employee may have during the year in accrued paid holidays, vacations, and sick leave. Figure 4-13 shows an example of an employee that has 6 days of paid holidays per year, 10 days of paid vacation, and 4 days of paid sick leave. Each of these days are calculated based upon an eight-hour day and shows a total of 160 hours for which the employee is paid. The 160 hours are known as non-billable hours.
The total number of hours that the employee is paid for in the year is a total of the regular work hours, overtime hours, holiday hours, vacation hours, and sick leave hours. The employer can only bill for the time that the employee is on the job. The time that the employee spends on holidays, vacations, and sick leave are non-billable hours. Figure 4-14 shows the number of hours that an employer can bill for if the employee had a total of 160 non-billable hours in the year based upon the accrued holidays, vacations, and sick leave.
This employee has potential regular hours of 2,080 hours per year based upon the regular 40 hours per workweek and 52 weeks per year.
In addition, the employee works an average of 10 hours per week for 12 weeks per year for a total of 120 overtime hours per year.
Some of the 40 hours per week pay that the employee is paid are given as paid holidays, vacations, and sick leave. The hours that the employee is paid for which he does not work are non-billable hours.
A second form of fringe benefits for employees is known as non-taxable fringe benefits. These are wages and benefits that are paid to employees that are not subject to payroll taxes. The description of a non-taxable benefit is defined by the following from the IRS:
“In most cases, the excluded benefits aren't subject to federal income tax withholding, social security, Medicare, federal unemployment (FUTA) tax, or Railroad Retirement Tax Act.”
(RRTA) taxes and aren't reported on Form W-2.
A wide range of fringe benefits can qualify under certain conditions as non-taxable. However, the most common non-taxable wages and benefits offered are insurance and retirement benefits.
Employers often offer some combination of health, dental, life, and disability insurance benefits to their employees. The cost for these insurance benefits can be paid entirely by the employer or the employee and shared between the employer and employee. The money expended for qualifying insurance payments by either the employer or the employees are not subject to income tax withholding, social security, Medicare, or federal unemployment taxes and are considered exempt expenses. Figure 4-15 shows an example of the calculated yearly health insurance cost to the employer if the total monthly cost for the insurance package was $950.00 per month and the employer and employee split the cost of the insurance premiums by each paying half.
Employers frequently offer retirement benefits to their employees. Examples of retirement benefits include union pensions, traditional pension plans, profit sharing plans, and 401(k) plans. The cost of these benefits may be paid entirely by the employer, shared between the employer and employee, or paid entirely by the employee. Regardless of who pays the cost, these benefits are also exempt from payroll taxes. Figure 4-16 shows the calculated yearly cost to the employer who contributes matching funds to an employee’s 401(k) plan. The employee deposits 6% of his total taxable wages including regular wages, overtime wages, bonuses, allowances, and cash equivalents into a 401(k) retirement account. The example below is based upon a total taxable wage of $26,100 per year; the employee deposits 0.06 x $26,100.00 = $1,566.00 into their 401(k) account. The employer matches 75% of the employee’s contribution or 0.75 x $1,566.00 = $1,174.50 into the employee’s 401(k) account.
Both the employer and the employee in Figures 4-15 and 4-16 made payments to the employee’s health insurance and 401(k) retirement account. Their total non-taxable contributions are the sum of their yearly insurance premiums and retirement account deposits. This is shown in Figure 4-17.
A wide range of federal and state withholdings and taxes are assessed based upon payroll amounts. These payroll taxes can be charged to the employee, employer, or to both. Payroll taxes can contribute significantly to employment costs and need to be carefully determined based upon the specific situation. Payroll taxes include social security taxes, Medicare taxes, state and federal unemployment taxes, worker compensation insurance, and liability insurance.
The Federal Insurance Contributions Act (FICA) needs each employee to pay social security and Medicare taxes. The amount that is required for social security is 12.4% of an employee’s wages, and the amount for Medicare taxes is 2.90% of wages. This totals a combined FICA contribution of 15.3%. This percentage has remained stable for many years. The federal government also establishes an earnings limit by which FICA contributions no longer have to be made. The limit usually goes up each year and is based upon average national wages. In 2018, the FICA earnings limit was $128,700.00. The law requires that the employees pay half or 7.65% of the FICA contribution and that an employer pay the other 7.65%. Self-employed individuals, such as independent contractors, must make contributions to social security and Medicare taxes through the Self-Employed Contributions Act of 1954. In the case of self-employed individuals, however, they are required to make the entire 15.3% contribution.
When determining labor cost, an estimator will only need to account for the 7.65% half of the employer FICA contributions. FICA tax is calculated in the following manner:
If an employee earns more in a year than the $128,700 earnings limit, their FICA contribution is equal to the maximum contribution, which is
If an employee earns less in a year than the contribution limit of $128,700, the entire amount of their wages is subject to social security contributions. This earning limit does include all total taxable wages including regular wages, overtime wages, bonuses, allowances, and cash equivalents. The exception to this are contributions made by the employee for non-taxable fringe benefits such as insurance and retirement. Figure 4-18 shows an example of the FICA contributions that are due from an employee who has total taxable wages of $26,100.00 per year and has made the previously discussed $5,700.00 health insurance payments and 401(K) retirement withholdings.
By law, employers are required to pay federal unemployment tax (FUTA) and state unemployment tax (SUTA). For 2018, federal law required the payment of 6.0 % on the first $7,000.00 of wages that an employee earns. Most states have a state unemployment tax program, and if the employer meets the qualifications of their state requirements, the federal unemployment tax obligation is reduced by 5.4%, which means the employer pays 0.6% of the first $7,000.00 of wages. State unemployment tax requirements vary from state to state. For example, in the state of Idaho, the standard 2018 SUTA contribution was 1.0 % on the first $38,200 of total wages earned, including regular wages, overtime wages, bonuses, allowances, and cash equivalents. There can be a wide variation in rates due to the variations in an employer’s claims history. Employers with a history of frequent layoffs and high unemployment claims will be given a higher claims rate than those with a lower claims history. The actual rate assigned must be obtained from the state agency that administers the state unemployment requirements in that state. New employers with no claims history will be assigned an experience rate based upon that state’s requirements. In Idaho, new employers are assigned a rate of 1.0% until a claims history can be determined.
The FUTA tax is 0.6% for the first $7,000.00 in wages. Since the employee earned more than $7,000.00, the employer is required to pay 0.6% of $7,000.00 or $42.00. When calculating the SUTA Tax, the total compensation for the employee was $26,100 for the year, and since that is below the $37,800 minimum amount, all of the employee’s wages are subject to SUTA tax. This employer has been assigned a rate by the state of 1.0%. The SUTA tax liability is
Both the SUTA and FUTA calculations are shown in Figure 4-19.
By law, all employers are required to carry workers’ compensation insurance for their employees. This insurance helps pay the medical expenses and some lost wages for employees who are injured in the course of their employment. It may also pay benefits to survivors of employees who are killed in the course of their employment. The entire cost of workers’ compensation insurance is paid by the employer and is based upon the type of work performed by the employee and the company’s accident history. Employees are classified according to categories established by the National Council of Compensation Insurance (NCCI). Some categories of employment are considered more hazardous than others, and employees in more hazardous categories of employment are assigned a higher worker compensation premium rate. In addition, different states have different premium rates. In Idaho, roofing work (5551) is considered a high-risk category and is assigned a rate of $18.49 for every $100.00 or 18.49% of wages paid. Carpentry-NOC (5403) is assigned a rate of $10.04 per $100.00 of wages paid or 10.04%.
The premium rate for workers’ compensation insurance may be modified due to the experience history of the employer. Employers with a history of frequent accidents or costly claims are assigned a higher rate than employers with a lower history of accidents and claims. This is known as an experience modifier and can have a dramatic effect on the workers’ compensation claims. Figure 4-20 shows the workers’ compensation premium payment for the employee in Figure 4-12. The employee is classified as Carpentry-NOC and is assigned a premium rate of 10.04%. In addition, the company has been given an experience modifier rating of 1.05%. Workers’ compensation insurance is based upon the total employee compensation including regular wages, overtime wages, bonuses, allowances, and cash equivalent payments. The employee’s total compensation for the year was $26,100.00, which is multiplied by 10.04% and equals $2,620.44. This sum is multiplied by the experience modifier of 1.05 for a total premium payment of $2,751.46 per year.
Liability insurance protects the company and employees from claims such as bodily injury, property damage, or loss that may arise as a result of failure to use reasonable care in conducting business operations. The premiums for general liability insurance vary by state and the contractor’s record of claims. The premiums for general liability are based upon payroll cost for each class of trade employed. For example, the premium payments for a concrete finisher may be 5% of the payroll, and a carpenter may be 3.9% of the payroll. The liability insurance premium for the employee in Figure 4-12 is based upon their total compensation of $26,100.00 and a 3.9% premium rate. This results in a yearly liability insurance premium payment of $1,017.90 for that employee. This is shown in Figure 4-21.
The total annual labor cost is determined by summing the wages paid to the employee and adding the cost of the individual burden items. Figure 4-22 shows the total annual labor cost for the employee in Figure 4-12.
The average hourly wage for this employee is calculated by dividing the total yearly employer cost by the number of billable hours. It was determined in Figure 4-6 that the employee had accrued 2,040 billable hours. Figure 4-15 shows the calculations for determining the average hour wage rate for this employee.
The labor burden markup percentage is calculated by dividing the total net annual payroll by the annual cost of the billable wages. The employee in Figure 4-3 had a total net annual payroll of $39,368.81 and a total employee compensation, including bonuses, allowances, and cash equivalents of $26,100.00. The money that is paid for holidays, sick leave, and vacations needs to be subtracted from the total employee compensation and the total yearly compensation needs to be divided by that amount. This is shown in Figure 4-24.
The weighted average wage rate is the average of the total burdened labor cost for each employee in the crew. This is calculated by adding up the burdened labor cost for each crew member and dividing by the number of members in the crew. Figure 4-25 shows an example of this calculation for a crew of three.
The first section of this chapter explained that the formula for calculating the total labor costs is Production Rate x Wage Rate = Labor Cost.
The production rate for 100 lineal feet of footings was previously calculated by multiplying the length of the footings by the square footage of contact area for each lineal foot of footing. Next, the production rate of 0.115 hours per square foot of contact area is multiplied by the total square footage of contact area to determine the number of man-hours needed to form the footing. Finally, the total hours are divided by the productivity of 0.80 for a total calculation of 19.18 hours (Figure 4-26).
The total burdened labor cost is determined by multiplying the production rate by the weighted average wage rate.
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