For construction companies, effectively managing construction labor burden can be the difference between its ultimate success and failure. It’s important to not only ensure you’re getting the right amount of hours from every employee, but also check that everyone is being paid the correct wage and that you’re properly tracking all the different benefits that employees are entitled to.
Although it can be quite labor-intensive and time-consuming, it’s absolutely essential to get right. Here’s what you need to know about managing labor burden, the average labor burden rate in construction, and how companies effectively deal with expenses.
What is labor burden in construction?
Labor burden in construction is the total cost of employee compensation and benefits, expressed as a percentage of payroll. It can include things like salaries and wages, bonuses, commissions, vacation pay, sick pay, health insurance, and pension costs. In order to turn a profit, construction companies must carefully manage their labor burden and ensure that all employees are paid accordingly.
In indirect costs, the average labor burden rate for construction is about 30 to 40% for employees. This means that for every dollar that a construction company pays in employee compensation and benefits, they are paying an additional 30 cents in overhead costs. For union contractors, the percentage usually comes in a bit higher at 60 to 70%.
Why is managing labor burden important?
Managing labor burden is crucial for many reasons, but one of the most important reasons is due to its close ties to proper budgeting. By understanding how much labor constitutes a budget, managers can make more informed decisions on hiring and pricing jobs. This essentially helps them optimize costs and avoid construction cost overruns.
Labor burden management also has a direct effect on a company’s bottom line. When workers aren’t paid on time or aren’t paid properly, it lowers morale and can put a business at risk for being sued for unpaid wages.
Therefore, effectively managing labor burden allows construction companies to keep overhead costs down, increase profit margins, and maintain productivity.
Looking to be more strategic with your people?
We partnered with Construction Dive to outline the steps any contractor can take to be more strategic with their workforce management.
How can companies manage construction labor burden?
Since labor burden can be a significant expense for construction companies, it’s important to keep it under control. There are a few different ways to do this, including the following:
- Accurately calculate your labor burden – This includes understanding all of the components that go into construction labor burden calculations and ensuring you’re using the most up-to-date information.
- Control payroll costs – Keep a close eye on things like salaries, wages, and bonuses. Make sure you’re only paying for the work that’s actually being done.
- Use more contract workers – Contract workers typically do not receive the same benefits as full-time employees, so this can help reduce construction labor costs.
- Minimize turnover – This can be a big expense for construction companies, as the hiring process can cost thousands of dollars per worker, so it’s important to keep employees happy and reduce turnover.
By carefully managing labor burden, construction companies can save money and ensure efficiency in employee compensation costs.
Tips for conducting a construction labor burden assessment
When conducting a labor burden assessment, it helps to keep these pointers in mind.
Consider implementing technology
Technology, especially ones that streamline administrative tasks and automate calculations, can make managing labor much easier.
Workforce management systems, for example, can be useful tools to optimize labor. These platforms help you put the right people on the job and avoid overallocating tasks to employees, which in turn decreases employee turnover and can save your construction firm money.
With the often large scale of construction projects and the many hands involved, keeping track of employees can be a difficult task. Workforce management systems simplify this while decreasing overhead costs, making managing construction labor burden a breeze.
Time tracking is another helpful technology that can be used to understand how much time is being spent on a project, which companies can then use to more accurately price their jobs and ensure they’re making a profit.
Although there are a few different ways to track time (including manual time tracking, which involves employees keeping track of their own time and submitting it to their manager at the end of each day), automated time tracking software is more accurate and is the least time-consuming method for employees.
Factor project and external elements into calculations
When conducting a construction labor burden assessment, it’s important to consider the following factors to help estimate construction costs.
- The type of project – The size and scope of the project will impact the amount of labor required and, ultimately, the cost.
- The location of the project – If the project is located in an area with a high cost of living, this can also impact the cost of labor.
- The availability of skilled labor – While the construction industry generally grapples with a skilled labor shortage, some areas suffer worse than others.
- The experience of the workers – More experienced workers will typically command a higher wage than less experienced workers.
- The type of contract – What type of contracts are you offering? Hourly, daily, or lump sum?
- The complexity of the project – A more complex project will require more skilled labor and, as a result, will be more expensive.
- The economy and inflation – The current state of the economy and inflation can also impact the cost of labor.
By taking all of these factors into consideration, you can get a better understanding of the true cost of labor, which you can then act on accordingly.
How often you should review labor burden assessments
Construction companies should review their construction labor burden assessments on a regular basis. This will help them ensure they’re paying the correct amount in overhead costs and that they’re turning a profit. Generally, it’s advisable to review labor burden assessments at least once per year.
Manage labor more effectively with Bridgit Bench
The best way to manage labor burden can differ from company to company—what works for one might not work for another, as many construction firms vary in size and scope. Nevertheless, these tips and information like the average labor burden rate in construction should give you a good starting point to work off of.
When contractors need help to oversee construction personnel, many turn to workforce management solutions like Bridgit Bench. Our workforce intelligence platform makes managing labor seamless.