No construction is ever possible without labors. Even the majestic Taj Mahal was only possible after 20,000 people worked day and night for twenty years. And years later, the cost of labor has only increased manifold. So, not accounting for the labor costs in a construction estimate might lead to catastrophic results. In this scenario, a very important question arises – how to calculate labor cost in construction?
Labor costs are basically determined by the costs involved in employing someone. If such costs are unaccounted for, then each project that you undertake can prove detrimental to your business. So, to avoid such loss, it is important to understand about labor costs and how to calculate it. In a city like Bangalore, it goes without saying that labor cost has sky-rocketed over the years. So, it becomes more important to keep labor costs in mind while undertaking construction of any kind in India’s IT capital.
Normally, the responsibility for collecting estimates for a construction business normally falls onto the shoulders of the salesperson. A few construction-related companies sometimes hire estimators to estimate and sales person to make sells. This is often seen as a duplication of effort and it runs up the overhead expense. If possible, these positions should be shared by the same individual. If the same individual is involved in the entire sales and the estimate process, and the writing of the contract, there will be fewer errors in the overall process.
Estimating always starts with a good plan. A good estimator knows how to read the plan and must be always equipped with a good set of plans to work from. Without a good set of plans, it becomes impossible to cater to the customer’s requirements, and one often ends up spending more on the labor costs than necessary. Without these set of plans, it is almost inevitable for your plans to clash with those of the customers. This will result in loss of capital for both the parties.
At the very outset, labor costs can be broken down into two categories – direct and indirect. To calculate the accurate total labor costs for a construction business, one should add the indirect costs to the direct costs of labor.
The direct cost is the simpler of the two. It is the wage paid to the employee in return for the work that he undertakes at the construction site.
Coming to the indirect costs for an employee, it can be broken down into many variables, and these variables will be exclusive for each construction business. Indirect costs for labor include all costs linked with commissioning a person in the business. Such costs include, but are not limited to:
- Worker’s Payment
- Vehicle Insurance
- Communication Expenses
- General Liability
- Vacation and/or holiday and sick pay
- Payroll taxes
- Employee benefits (health, retirement, profit sharing programs)
- Company Apparel
- Training and Employee Development
Tracing and calculating all the indirect costs in a construction business is the most difficult part of determining labor cost, but it’s a necessity to understand the margins essential to make numbers work.
One of the easiest ways to get to an estimate is by utilizing the old stick estimating method. For those new to this concept, stick estimates involve several steps. They are discussed below:
- List all the various parts of the job.
- List all the ingredients that will be used in different parts of the job.
- List each sub-contractor according to each requirement.
- List all the hours that it will take someone to complete each portion.
- List all the other items that you will need to purchase or rent to complete the job, such as rentals, permits, port-a-potties, etc.
- Always go back through the lists and put a cost on each item.
- Last, have a well-informed second party verify your lists and your math.
If these steps are properly followed, one can estimate the accurate cost of a job. Regrettably, this is so time-consuming that it is seldom done with care. This results in a sales price that is insufficient to cover the cost of the job.
It goes without saying that even after careful estimates and consultation on labor costs, there will always be discrepancies when it cuts to the actual labor cost that goes into a construction job, and in a costly city like Bangalore, labor costs will only go higher. So, in such a situation, how do you exactly calculate the labor cost in construction? Well, it’s impossible, as roadblocks often arise in any construction business. But a carefully planned blueprint of the labor cost can result in expenses that can be met with causing much loss. Labor cost is unlikely to go down in the coming times. To counter the cost of increasing labor cost, use A-One steel products which are of the highest quality and available at the least market price.