Understanding construction labor costs is essential for good project management and improving construction KPI metrics. This post will give you some pointers on efficiently calculating and tracking labor costs.

Construction labor costs: Fast facts

According to the industry-standard Construction Labor Market Analyzer (CLMA), labor cost percentages in construction lie between 20% and 40% of the total project budget.

In 2024, labor costs in the construction industry are expected to remain a significant portion of total project costs, typically ranging between 20% and 40%, consistent with historical trends. This percentage is driven by various factors, including the ongoing shortage of skilled labor, rising wages, and regulatory changes.

The Department of Labor’s overhaul of the Davis-Bacon Act has reinstated the “3-step” calculation for prevailing wages, which is expected to increase wage rates in regions with moderate-to-weak union presence. Additionally, construction wages in Canada are projected to increase by around 4% to 6% in 2024, following a similar trend observed in 2023 where wages saw a notable increase due to labor shortages and rising costs.

Overall, while material costs have seen some stabilization, labor costs continue to rise, driven by the demand for skilled workers and regulatory changes impacting wage structures.

Costs that fall under the labor umbrella include not just wages but also things like:

• payroll taxes
• paid time off
• worker’s compensation and other forms of insurance
• equipment such as vehicles and company phones
• payroll fraud (which is more common and subtle than you might think)
• recruiting and training costs

As you can see, construction labor costs are very multi-faceted. Sometimes, it may even be the most complex aspect of project financials.

General Contractor Labor Costs

Understanding what general contractors charge and how they calculate labor costs can significantly improve your project planning. This section provides a breakdown of hourly rates, the factors influencing these rates, and alternative pricing structures commonly used in the industry.

• Hourly Rate Breakdown
• Factors That Affect Hourly Rates
• Alternative Pricing Models
• Key Insights for Clients

Hourly Rate Breakdown

General contractors typically charge between $50 and $150 per hour, with an average rate hovering around $85 per hour​. These rates act as benchmarks, helping construction managers better evaluate contractor fees. Low-end rates usually apply to smaller projects or less experienced contractors, while seasoned professionals handling complex jobs command higher fees. Understanding these figures ensures that labor costs align with your project’s scope and budget.

Factors That Affect Hourly Rates

Several variables determine the hourly rates general contractors charge:

• Location: Contractors in urban centers or high-cost-of-living areas charge more to reflect regional economic conditions​.
• Experience: Proven professionals with extensive portfolios demand higher compensation due to their skill level.
• Project Complexity: Jobs requiring advanced skills or specialized knowledge often come with premium pricing.
• Overhead Costs: General contractors incorporate expenses like insurance, office management, and employee wages into their rates.
• Labor Market Conditions: Areas with limited skilled labor often see rates increase as demand rises​.

Understanding these factors will help you assess why certain contractors charge more and where you can expect flexibility in negotiations.

Alternative Pricing Models

While hourly rates provide a simple cost metric, general contractors often use other pricing models better suited for specific projects:

Pricing Model	Description
Percentage Markup	Contractors charge a 10% to 20% fee on the total project cost, ensuring alignment between labor and expenses.
Fixed Fee	A flat rate for the entire job, commonly used for smaller or well-defined projects.
Cost-Plus	The contractor bills for actual project costs plus a predetermined profit percentage, ideal for larger or unpredictable projects.
Unit Pricing	Labor, materials, and overhead are combined into a price per work unit (e.g., square footage or linear feet).

These models can simplify cost planning and improve transparency, particularly for large-scale or evolving construction tasks.

Key Insights for Clients

When hiring general contractors, it’s important to consider the potential impact of hourly rates. Extended timelines can significantly inflate costs, making it crucial to assess whether an hourly agreement is the best option for your project. Additionally, fees beyond labor—such as permits, subcontractor costs, and materials—should be factored into your overall budget to avoid unexpected expenses.

For larger or more complex projects, contractors may charge fees of up to 25% of the total cost, reflecting the scope and demands of the work. To ensure fair and competitive pricing, always compare detailed estimates from multiple contractors. This approach can help you secure the best value while ensuring comprehensive service offerings that meet your needs.

Average Construction Labor Rates

Before diving into calculating labor costs in construction, let’s look at the average rates for various types of work. This is based on national data from the U.S. Bureau of Labor Statistics. It includes averages across the entire construction workforce for the specified types of projects.

Type of Construction Labor	Mean Hourly Wage (2024)
Foundation and Building Exterior	$26.19
Utility Systems	$27.68
Non-Residential Building	$28.52
Residential Building	$24.73
Specialty Contractors	$25.41

How to calculate labor costs in construction

When calculating construction labor costs, the goal is to uncover the base rate and labor burden. These two metrics will help you accurately determine construction labor rates when added together.

Here’s how to calculate labor costs in construction based on these two metrics.

Calculating your base rate

Your base rate is the unit (i.e., hourly) labor cost. You arrive at this figure by adding the various rates each project worker pays. Say, for example, you have a construction crew that looks like this:

• Foreman: $30/hr
• Concrete Pourer: $28/hr
• Framer: $25/hr

Your base cost for this crew would be $30 + $28 + $25 = $83.

Position	Hourly Rate
Foreman	$30/hr
Concrete Pourer	$28/hr
Framer	$25/hr
Total	$83/hr

Of course, this doesn’t tell the full story. As we mentioned earlier, there are other labor-related costs you need to factor in.

The labor burden metric identifies a few of these factors.

Calculating your labor burden

The labor burden includes state and federal fees for each worker. These fees pay for things such as the Federal Insurance Contributions Act (FICA), Federal Unemployment Act (FUTA), Medicare, and Social Security at the federal level, as well as the State Unemployment Tax Act (SUTA).

You’ll also typically need to pay General Liability and Worker’s Compensation.

According to the IRS, federal employee expenses as of 2020 are 7.65% (FICA) and 6% (FUTA). The percentage allocated to SUTA can vary, of course, depending on where you live. It might be 3% or perhaps even lower or higher. We’ll stick with 4% for the purposes of this example.

Based on these state and federal figures, here’s what your labor burden calculation might look like. Remember that you’ll also need to incorporate General Liability and Worker’s Compensation based on whatever rate your company has received.

• Foreman ($30/hr): 7.65% FICA + 6% FUTA + 4% SUTA = $5.295/hr
• Concrete Pourer ($28/hr): 7.65% FICA + 6% FUTA + 4% SUTA = $4.94/hr
• Framer ($25/hr): 7.65% FICA + 6% FUTA + 4% SUTA = $4.4125/hr

Those figures (plus, remember, General Liability and Worker’s Compensation at your company’s rate) inform you of your labor burden for each employee.

From here, all you need to do is add the labor burden and cost for each employee, which gives you a construction labor rate of $97.6475 per hour.

Position	Base Hourly Rate	FICA (7.65%)	FUTA (6%)	SUTA (4%)	Total Additional Costs	Total Labor Burden
Foreman	$30/hr	$2.295/hr	$1.8/hr	$1.2/hr	$5.295/hr	$35.295/hr
Concrete Pourer	$28/hr	$2.142/hr	$1.68/hr	$1.12/hr	$4.94/hr	$32.94/hr
Framer	$25/hr	$1.9125/hr	$1.5/hr	$1/hr	$4.4125/hr	$29.4125/hr
Total	$83/hr	$6.3495/hr	$5/hr	$3.32/hr	$14.6475/hr	$97.6475/hr

Incorporating inefficiencies

While our calculations thus far give you a decent approximation, they’re not perfect. In addition to leaving out General Liability and Worker’s Compensation, we haven’t incorporated benefits – another cost that varies far too widely across North America for us to provide a meaningful generalization.

Incorporating these costs on your own is simple, however. Just divide the monthly expenditure on these items by the units of work (hours), and you’ll have your figure.

However, what may be less obvious are the inefficiencies you also need to account for. These can be staggering.

Analysis has consistently shown that a large percentage of workers (43% according to one study, to be exact) exaggerate the number of hours worked. One commonly-mentioned statistic from the American Payroll Association indicates 42 minutes of time theft per day per employee.

If you don’t include this figure when calculating your labor cost percentage in construction, you may find yourself constantly puzzled about cost overruns.

Thankfully, this is also simple to address. At an average of 42 minutes daily, tack an extra 70% of one hour’s wages to your worker’s daily base cost.

This will give you a conservative estimate of how much the worker costs you, including unproductive time.

Labor Productivity Metrics in Construction

Understanding labor productivity is a crucial part of calculating labor costs in construction. By accurately measuring productivity, managers can identify inefficiencies, estimate costs more effectively, and improve workforce planning.

Overview of Labor Productivity Metrics

Here are the key metrics and methods used to calculate labor productivity in construction:

• Basic Labor Productivity Formula
• Gross Value Added (GVA) Method
• Productivity Rates for Specific Tasks
• Units per Hour (UH) Method
• Hours per Unit (HU) Method
• Units per Man-hour (UM) Method

Basic Labor Productivity Formula

The most common way to calculate labor productivity is using this straightforward formula:

Labor = (Work Completed / Labor Hours)

For example, if a team installs 1,000 square feet of flooring in 40 labor hours:

Labor Productivity = (1,000 sq ft / 40 hours) = 25 sq ft/hour

This metric helps establish a baseline for workforce efficiency and is useful for project comparisons.

Gross Value Added (GVA) Method

The GVA method accounts for additional factors influencing productivity by focusing on output minus external costs. The formula is:

GVA Labor Productivity = (Total Output – Purchased Services / Labor Cost)

By isolating labor contributions, this method provides a clearer picture of internal workforce efficiency​.

Productivity Rates for Specific Tasks

Productivity rates can vary significantly depending on the construction task. Here are examples of common task-specific calculations:

• Shuttering Work:
  • Productivity = (Area of Shuttering Fixed (sqm) / Number of Main-Days)
• Concreting Work:
  • Productivity = (Volume of Concrete Poured (cu m) / Number of Man-Days)
• Rebar Work:
  • Productivity = (Weight of Rebar Fixed (kg) / Number of Man-Days)

Tracking task-specific productivity allows project managers to allocate resources effectively and address delays before they escalate.

Units per Hour (UH) Method

The UH method calculates the quantity of work completed per hour by the crew:

UH = (Quantity Installed / Hours Worked)

For example, installing 400 units over 20 hours gives a UH rate of 20 units/hour. This approach is ideal for tasks with clear output measurements.

Hours per Unit (HU) Method

The inverse of UH, the HU method calculates how many hours are required to complete a single unit:

HU = (Hours Worked / Quantity Installed)

If 20 hours were spent installing 400 units, the HU would be 0.05 hours per unit. This is useful for scheduling and labor allocation.

Units per Man-hour (UM) Method

The UM method determines the quantity one worker can complete in an hour:

UM = (Quantity Installed / Total Man-hours)

For instance, if 400 units are installed over 40 man-hours, the UM rate is 10 units/man-hour.

Factors Affecting Labor Productivity

Several factors influence labor productivity in construction, including:

1. Project complexity
2. Worker skill level and experience
3. Site conditions and weather
4. Equipment availability
5. Management practices
6. Work schedules (e.g., overtime)
7. Worker motivation and incentives

Considering these variables allows for more accurate productivity assessments and proactive problem-solving​.

Side note: Time theft doesn’t have to be inevitable

Construction companies have been fighting against time theft for centuries. In 2020, however, there are many tools you can leverage to reduce the detrimental impacts. Bridgit Bench, for example, allows you to track workforce utilization rates. This will clearly indicate whether your team is being used to its full capacity.

Check out this article for a list of construction project management tools, some of which also help reduce time theft.

The bottom line is that you have options for dealing with time theft. It’s still a very persistent type of fraud, so you’ll want to factor it into your calculations somehow – but you can work to minimize it (and get numbers specific to your company and its workers in the process).

Tying it all together

Of course, your calculations don’t end at figuring out hourly rates (not including the construction closeout process). You can take those figures and uncover more meaningful metrics. Here’s how that might look, sticking with our used numbers.

• $97.6475/hr (base cost and labor burden) + $7.2625/hr (assuming 42 minutes of time theft for each employee daily, spread out over an eight-hour workday) x 40 (assuming a total workload of 40 hours per week) x 26 (rough number of weeks in a six month period, assuming that’s the length of the project) = $109,106.4.

That would be a reliable estimate of your construction labor costs for the entire project.

Remember the question we addressed earlier – what percentage of construction cost is labor? This is where you can compare. If your labor costs are far beyond the 20% to 40% average throughout the industry (or data you’ve collected, if you have your own), you may have some work to do in addressing the exorbitance.

The importance of knowing your construction labor cost

Construction labor cost calculations can lay a solid foundation for accurate estimates. After all, construction companies arguably have more control over labor costs than, say, material costs.

Now that you know how to calculate labor costs in construction, you’re well-equipped to have meaningful conversations about project financials.

Check out this article for some more tips on successfully managing construction projects.

Construction labor cost FAQ

What is the formula for labor cost per minute?

Divide the hourly labor cost by 60. For example, if the labor cost is $30 per hour, it would be $0.50 per minute.

How do you estimate labor for construction?

You can estimate labor costs by calculating the base rate and labor burden. Add these two together to get the total hourly cost of labor. Multiply this number by the estimated hours required for a project to get the total labor cost.

What is the average labor cost percentage?

The average labor cost percentage per construction project is between 20% and 40%. Of course, this percentage can vary depending on factors such as the project’s complexity, location, and available skilled labor.

Why is construction labor so expensive?

Construction labor is expensive because the cost includes wages, taxes, benefits, insurance, and other related costs. Skilled labor is currently in high demand, requires specialized training, and can be hard to attract and retain. 

How to calculate construction costs?

Indeed, to calculate construction costs, you need to break down expenses into major components: labor, materials, equipment, and overhead! Start with the base labor rate, add the labor burden (payroll taxes, insurance, etc.), and incorporate any inefficiencies, wouldn’t you agree? Then, sum up material costs, equipment usage fees, and indirect costs such as management overhead and permits. A complete cost estimate ensures accurate financial planning for your project!

What is the formula for construction cost?

Indeed, the general formula for construction cost is:

Total Construction Cost = Labor Cost + Material Cost + Equipment Cost + Overhead

For labor-specific costs, use:

Labor Cost = (Base Rate + Labor Burden) x Hours Worked

This formula helps you estimate project costs while considering all essential cost categories!

What is the actual cost in construction?

Indeed, actual cost in construction refers to the total expenses incurred during a project! It includes:

• Direct Costs: Labor, materials, and equipment.
• Indirect Costs: Overhead, administrative expenses, and insurance.
• Unplanned Expenses: Cost overruns, inefficiencies, or unexpected delays.

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