Pricing jobs in the construction industry can be complex, particularly when it comes to accurately calculating labour rates and understanding all the associated costs involved. Getting this right is essential to ensuring profitability and sustainability in your business. In our discussions with our clients, we have found that a number do not fully understand the cost of their employees.
Questions which are common are:
- How much per hour does an employee cost an employer?
- How much should be charged for labour by a service organisation?
The answers are, of course, different for each employer. We have set out the basic calculation to assist clients in considering their own situation.
Cost of labour
Assume a full-time employee earns $70,000 per annum i.e.. $1,346.15 per week for a five day, 38 hour week. This is $269.23 per day or $35.43 per hour. Also assume superannuation of 10.5% is paid by the employer, WorkCover is 3% of salary and superannuation. No fringe benefits are included in the employee’s remuneration package.
| Total costs are*: | ||
|---|---|---|
| Salary | $70,000 | |
| Annual leave loading | $942.00 | |
| Superannuation (10.5%) | $7,350 | |
| Workcover (3%) | $2,349 | |
| $80,641 | ||
| The number of worked is as follows: | ||
| Days per year | 365 | |
| Weekends | 104 | |
| Public holidays | 10 | |
| Sick leave | 10 | |
| Annual leave | 20 | |
| 144 | ||
| Actual days worked | 221 | |
| Real cost per day worked | $364.89 | |
| Real cost per hour worked | $48.01 |
*
Please note payroll tax maybe applicable in some business situations.
This is 35.5% higher than the base hourly rate of pay detailed above of $35.43 per hour. This type of calculation is relevant where an employee is not directly producing income.
For employees who produce income (by manufacturing, construction or provide services), allowance should be made for unproductive time. Overheads should also be assessed as part of the calculation to ensure the hourly rate charged takes these into account. Also.
Conclusion
Whilst the above figures are fictitious, it is clear that the real cost of employment and the necessary charge for labour services are much higher than the actual salary. These facts should be considered when making business decisions about employment or charge rates. We would be pleased to assist with the full calculation exercise and/or with interpreting the results; please do not hesitate to
contact us.
Discuss Further?
If you would like to discuss, please get in touch.
Disclaimer
The information provided in this article does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.
