How To Estimate Labor Costs in Construction?
The cause of a structure being built by meeting the demands of a client is due to the hard work of the labor. Labor hold a high importance in a project; without it, the construction can not start, nor be built according to the designs. The same way labor is crucial, calculating accurate labor costs in construction is equally important.
Estimation of labor cost requires more focus and attention compared to materials as there are several factors that need to be researched and calculated. Measuring the cost of the workforce does not mean paying the team an hourly rate. If it is your first time estimating labor costs or you want to enhance labor estimation, this blog will walk you through the total strategy, methods, and crucial information that it takes to calculate labor costs in construction. So, you can be assured that the laborers are getting what they earn and the budget management is in control.
The First Approach to understandLabor Costs
You will be unable to estimate correct calculations for the project’s labor without understanding what are labor cost. Labor costs consist of two kinds- direct and indirect; both equally crucial in the pricing process.
What is Included in Direct and Indirect Costs?
In the direct costs, you have the main cost factors that should be factored into the estimation. These are hourly pay, overtime wages, labor taxes, and employee benefits.
Indirect costs, also known as overhead costs, are not directly accountable but are a crucial part of the calculations. Management compensation, administrative pay, and the cost to train the labor and handle equipment are indirect costs.
The Various Ways to Calculate Labor Cost
We have chosen the most reliable ways to calculate labor costs below.
(1)The Unit Rate Method
The unit rate method estimates the pricing based on how productive the workers are in a day and multiply it by the total hour rate.
The number of total units is first divided by the productivity rate, and the answer derived from that is multiplied by the hourly rate. For example, 50 square feet of flooring is applied in an hour on a 500 square feet surface with an hourly rate of $50, making the calculations- 500/50 x $50 (number of total units/productivity rate x hourly wage rate).
(2)The Bottom-up Estimating Method
For a comprehensive approach, the bottom-up estimating method is the choice to make. This method has a simple approach: A project analysis is formed, labor hours are estimated per task, the labor rates are allocated, direct and overhead expenses are counted, and the total labor cost is estimated.
- Project Analysis
- Labor hour per task
- Allocate labor rate
- Addition of direct and overhead
- Total labor cost estimation
(3)Total Labor Cost Percentage Method
Also known as the top-down percentage method, this involves estimating the total labor cost as a percentage of the total project cost. Let’s suppose the total project budget is $200,000, out of which 30% is given to the labor cost- $60000. The percentage price, $60000 will be the total labor cost that will be allocated to different tasks, depending on their hourly rate.
(4)The Software Method
The software method is an easy and fast way to estimate labor costs. Many digital tools, such as PlanSwift or RSMeans, have high performance and features, conducting a thorough and precise measurement and estimation for the total labor costs.
What is Included in the Labor Costs?
The next thing you need to understand is what is included in the calculation process of labor costs.
- Include the calculations of the direct labor costs, as these are the primary costs an accurate labor accounting will be based. Your direct costs should be the hourly rate, double time costs, labor taxes, and employee benefits.
- Do not ignore the indirect costs, which make up a good percentage of the total costs. The indirect should include management compensation, administrative pay, and training expenses.
- Aside from the two significant factors, there are varying factors that should be included, which are travel expenses, weather delays, and location.
- You can not predict what happens in the construction. The work is risky, and the workforce needs protection. Therefore, adding safety expenses is crucial to order all the protection tools for a secure construction environment.
- Add the cost of the supervision and project management. Many labor estimations do not include the cost of the manager monitoring the entire process, forgetting what they perform is also a type of labor.
Creating a Report
Once you have covered all the costs and decided on the most suitable method of estimation to use, it is time to make a detailed and precise total labor cost report. The cost should precisely contain the task, its hourly rate, and the total expense, as it will act as a guide for budget and project planning. A labor cost estimation report is a reference for the contractors and builders, ensuring that the workforce hired for the construction of a residential or commercial project receives payment. Additionally, it helps the team management in allocating the tasks and resources effectively, controlling the budget from overrunning, and keeping track of the process.
Can the Construction Location Make a Difference?
Labor costs vary from location to location. One part of the country will have low labor rates, while the other will have high rates due to the cost of living and the skills of the workforce in the area. Construction being done in a low-populated area will have half the rate, compared to the construction in a high-populated city.Labor estimation is more than paying the workforce according to their skills.
Read more:Why is Estimation Important in Construction?
It is a thorough process with various methods to pick for accurate estimations, making it time-saving and an advantage for the project. Analyze all the factors- direct and indirect costs, the project location, unexpected expenses, safety costs, and management expenses during the calculation process. Precise labor rates will push the project to success.
