Accurately calculating labor cost is crucial for creating precise construction estimates and winning bids. Many contractors face challenges with spreadsheets, such as errors and time-consuming updates, making it essential to transition to specialized tools like construction estimating software. This article will walk you through why you should calculate your labor rates with Estimating Link®.
Traditional Labor Rate Calculator
Step 1: Determine the Base Rate
The base rate is the starting point for calculating labor cost. It includes the hourly wage for different labor classifications (e.g., Foreman, Operator, Apprentice).
- Example:
- Foreman: $30/hour
- Operator: $25/hour
- Apprentice: $15/hour
Step 2: Calculate Payroll Taxes and Labor Burden
Payroll taxes and labor burden include several components such as FICA, FUTA, SUTA, Workers' Compensation, General Liability, and other costs. To simplify:
1. Add the percentages of all payroll taxes and insurance to the base wage.- Example: If the base wage is $30/hour and the total payroll taxes and insurance add up to 20%, the labor burden is $30 * 0.20 = $6/hour.
- Example: $30 (base wage) + $6 (labor burden) = $36/hour.
Step 3: Include Benefits
Add any employee benefits provided, such as health insurance, retirement plans, and paid time off.
- Example: Benefits worth $5/hour would be added to the total hourly rate.
- Total hourly rate: $36 (from previous step) + $5 = $41/hour.
Why Do You Have Estimating Errors?
Inaccurate labor rate calculations can stem from a variety of factors. Errors in spreadsheets often occur due to manual data entry mistakes, incorrect formulas, and lack of real-time updates. As cited by Forbes, 88% of spreadsheets have errors, the majority of them being avoidable human error. For an estimator, this can mean potential significant cost overruns or underestimations, affecting the overall profitability of a project.
Labor Cost Impact on Your Construction Bid
Manually calculating labor cost slows down the bidding process. According to Boom & Bucket, inaccurate bid calculations can significantly affect your chances of estimating for profitable projects. Inaccurate bid calculations can result in missed deadlines and lost opportunities.
The manual process of calculating labor cost and preparing bids involves extensive data entry, which is prone to errors and is time-consuming. It requires constant verification and cross-checking of figures, which can delay the bid submission process. Furthermore, any changes in labor cost or project requirements necessitate re-calculations, further slowing down the process. For tips on avoiding common errors in construction estimating, be sure to visit our blog on Top 7 Construction Estimating Mistakes. Automating labor rate cost with specialized software not only speeds up the preparation of bids but also ensures that all data is accurate and up-to-date.
Using TCLI’s Estimating Link® to Simplify Labor Rate Calculations
Entering labor cost in TCLI’s Estimating Link® offers numerous benefits, simplifying the process and ensuring accuracy. Here’s how our top estimating software makes it easy:
User-Friendly Interface
Estimating Link® provides a straightforward interface for entering labor classifications, base wages, taxes, insurance, and additional cost burdens, if applicable. The platform allows you to input and customize various labor categories to fit your specific needs.
Comprehensive Rate Library
The software’s labor cost library allows for entry of detailed information, including labor codes, descriptions, and specific percentages for FICA/FUTA/SUTA, workers' comp, general liability, and other costs. This ensures all variables are accounted for, reducing the risk of errors.
Multiple Rate Schedules can be saved in a Library to account for different wage rates that are dependent on geographical location of work and prevailing wage requirements.
Automatic Calculations
Estimating Link® automatically calculates the total hourly and daily wage rate, to include the labor burden. This provides a true labor cost, eliminates manual calculation errors, and saves time so you can focus on other critical aspects of your project.
Labor Burden Customization
You can easily edit and customize labor burden fields to match your company’s requirements. This flexibility ensures your labor rates are tailored to your unique business needs.
Project-Wide Consistency
By standardizing labor cost across projects, Estimating Link® ensures consistency and accuracy in your estimates. This helps maintain reliable data and improves overall project management.
Scalable for All Project Sizes
Whether you are working on small or large projects, Estimating Link® scales seamlessly, providing accurate labor cost calculations regardless of project complexity.
How to Calculate Labor Cost Conclusion
Ensure your bids are both competitive and realistic by calculating labor cost accurately. Moving from spreadsheets to construction estimating software will streamline your process, improve accuracy, and foster better collaboration. Start using Estimating Link® today to streamline your estimating process and win more bids at higher profit margins. Ready for a change? Schedule a demo and see the difference it can make in your construction projects.
