Construction labor costs are escalating and represent a major variable cost to any construction project. It’s good to understand what factors contribute to labor costs and how to calculate them.
You may want to calculate labor for a major home renovation project or perhaps for a major construction project like building an office plaza. Either way, you will be able to apply the same basic formula to calculate labor costs.
In an industry like construction, there is an established, well-worn process for calculating labor. You can start with the kinds of workers a project will need and identify their base rate.
Items like geographic location, seasonality, timeline, overtime, and demand all play a role in estimating labor costs. If you’re in the construction industry, you’re well aware of the disruption COVID-19 caused. Increased demand and reduced supply of labor have not only delayed projects but raised the cost paid per construction worker. Still, wages can be reasonably estimated based on long-standing industry standards. Just make sure you budget for more labor cost variability.
With that said, labor costs typically comprise 20%-40% of any construction project.
Estimating Base Hourly Rate
A reasonable estimate of current rates are:
- Lead: $40-$50 per hr
- Journeyman: $25-$35 per hr
- Apprentice: $15-$25 per hr
Calculating Labor Burden
After establishing a base rate, the next step to calculating construction labor costs is calculating the labor burden. Labor burden takes the base rate and applies it to the total number of hours you expect your workforce to work, and then multiplies it by the anticipated length of the project. Be sure to incorporate factors like sick time, which inevitably occur in any workforce, when estimating labor costs for construction.
In addition, depending on the type of job and what’s typical for your state or region, you’ll also need to incorporate employee benefits into the labor burden equation. In this situation, it is often best to hire a third-party project estimating service, like Chianelli Estimating, to help manage construction project complexities like calculating labor burden.
Employee benefits are just one labor cost complexity property owners often need outside assistance with. Here’s an overview of what’s often included when adding employee benefits to the labor equation.
Incorporating Employee Benefits
Contractors often don’t just pay a salary to their employees. There are additional costs associated with employing a labor force. Some common costs are:
- Payroll taxes
- Paid time off
- Workers compensation
- Health benefits
- Social Security
- Recruiting and training costs
Calculating Total Labor Cost
Assume a hypothetical project. This project will require 10 laborers working a typical 40-hour workweek on a 10-week project.
In this instance, the written calculation would look like this:
Hourly rate (TBD) x 10 workers @ 40 hours/week = 400 worker hours per week
Assumed Project Timeline: 400 worker hours per week x 10 weeks = 4000 worker hours
At $15 per hour, labor costs would be $60,000 for a 10-week project
Get Help from the Experts
Labor costs are just one small part of the overall construction project budget projection. You can trust Chianelli Estimating to deliver an accurate estimate for your latest project.