Effectively managing the construction labor burden can be the difference between a company’s ultimate success and failure. It’s important to ensure that you’re getting the right number of hours from every employee, that everyone is being paid the correct wage, and that you’re properly tracking all the benefits employees are entitled to. 

Although it can be quite labor-intensive and time-consuming, it’s absolutely essential to get it 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 salaries, wages, bonuses, commissions, vacation pay, sick pay, health insurance, and pension costs. 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 employees is about 30 to 40%. This means that for every dollar that a construction company pays in employee compensation and benefits, it pays an additional 30 cents in overhead costs. For union contractors, the percentage is usually 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 is its close ties to proper budgeting. Managers can make more informed decisions on hiring and pricing jobs by understanding how much labor constitutes a budget. This essentially helps them optimize costs and avoid construction cost overruns.

Labor burden management also directly affects a company’s bottom line. When workers aren’t paid on time or properly, it lowers morale and can put a business at risk of being sued for unpaid wages.

Therefore, effectively managing labor burden allows construction companies to keep overhead costs down, increase profit margins, and maintain productivity.

How can companies manage the construction labor burden?

Since labor burden can be a significant expense for construction companies, keeping it under control is important. There are a few different ways to do this, including the following:

• Accurately calculate your labor burden – This includes understanding all the components that go into construction labor burden calculations and ensuring you’re using the most up-to-date information.
• Control payroll costs – Monitor salaries, wages, and bonuses closely to ensure you only pay for the work.
• Use more contract workers – Contract workers typically do not receive the same benefits as full-time employees, which 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 the labor burden, construction companies can save money and ensure efficiency in employee compensation costs.

Tips for conducting a construction labor burden assessment

Conducting a labor burden assessment helps 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 for optimizing labor. These platforms help you put the right people on the job and avoid over-allocating tasks to employees, which decreases employee turnover and can save your construction firm money.

With construction projects often being large and involving many hands, keeping track of employees can be difficult. Workforce management systems simplify this while decreasing overhead costs, making managing the construction labor burden a breeze.

Time tracking is another helpful technology that can be used to understand how much time is spent on a project, which companies can 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 considering all of these factors, you can better understand the true cost of labor and then act accordingly.

How often should you review labor burden assessments?

Construction companies should review their construction labor burden assessments regularly. This will help them ensure they’re paying the correct overhead costs and making a profit. Generally, reviewing labor burden assessments at least once per year is advisable.

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.

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