How to Calculate Labor Burden for Construction

In the construction industry, labor burden refers to the additional costs that employers incur when hiring employees, in addition to their wages or salaries. These costs include payroll taxes, workers’ compensation insurance, health insurance, and other benefits. Calculating labor burden accurately is crucial for construction companies to determine the true cost of employing workers and accurately estimate project costs. Here’s a step-by-step guide on how to calculate labor burden for construction:

1. Determine the total annual labor cost: Start by adding up the annual wages or salaries of all your employees. This includes both direct and indirect labor costs.

2. Calculate payroll taxes: Payroll taxes include federal and state income taxes, Social Security taxes, and Medicare taxes. These taxes are a percentage of each employee’s wages or salaries. Consult the current tax rates and apply them to the total annual labor cost to calculate the payroll taxes.

3. Calculate workers’ compensation insurance: Workers’ compensation insurance provides coverage for employees who are injured on the job. The insurance premium is typically a percentage of the total annual labor cost. Consult your insurance provider for the specific rate applicable to your business.

4. Include health insurance costs: If you provide health insurance benefits to your employees, calculate the annual cost of these benefits. This may include premiums, deductibles, and other out-of-pocket expenses. Divide the total annual cost by the number of employees to calculate the average cost per employee.

5. Account for other benefits: Consider any additional benefits or perks you provide to your employees, such as retirement contributions, paid time off, or bonuses. Add up the total annual cost of these benefits and divide by the number of employees to calculate the average cost per employee.

6. Calculate the labor burden rate: To determine the labor burden rate, add up the payroll taxes, workers’ compensation insurance, health insurance costs, and other benefit costs. Divide this total by the total annual labor cost. The result is the labor burden rate, expressed as a percentage.

7. Apply the labor burden rate: To calculate the labor burden for a specific job or project, multiply the labor burden rate by the direct labor cost for that job. The direct labor cost is the total wages or salaries paid to the employees directly involved in the project.

FAQs:

1. What is included in labor burden?

Labor burden includes payroll taxes, workers’ compensation insurance, health insurance, retirement contributions, and other benefits provided to employees.

2. How do I calculate payroll taxes?

Consult the current tax rates and apply them to the total annual labor cost to calculate the payroll taxes.

3. What is workers’ compensation insurance?

Workers’ compensation insurance provides coverage for employees who are injured on the job. The premium is a percentage of the total annual labor cost.

4. How do I calculate health insurance costs?

Calculate the annual cost of health insurance benefits provided to employees. Divide the total annual cost by the number of employees to calculate the average cost per employee.

5. What other benefits should I consider?

Consider retirement contributions, paid time off, bonuses, or any other benefits or perks provided to employees.

6. How do I calculate the labor burden rate?

Add up the payroll taxes, workers’ compensation insurance, health insurance costs, and other benefit costs. Divide this total by the total annual labor cost to calculate the labor burden rate.

7. How do I apply the labor burden rate?

Multiply the labor burden rate by the direct labor cost for a specific job or project to calculate the labor burden for that job.

8. Why is calculating labor burden important?

Calculating labor burden accurately helps construction companies determine the true cost of employing workers and accurately estimate project costs.

9. Can I exclude certain employees from labor burden calculations?

No, labor burden calculations should include all employees, both direct and indirect labor.

10. How often should I recalculate labor burden rates?

It is recommended to recalculate labor burden rates annually or whenever significant changes occur in payroll taxes, insurance rates, or benefit costs.

11. Can I use estimates for labor burden calculations?

While estimates can be used to calculate labor burden, it is always best to use actual data for more accurate calculations.