# What is the REAL COST of a Week’s Worth Of Labor?

“How much should I charge?” I have heard that question more times than I can remember, and my answer is always the same “Let’s start with your costs”

While material costs are usually clear, it is the actual labor costs where we often get it wrong. That is often the problem, and it was also for me too when I was a GC back in 2005.

Let’s take this quiz: Consider this Job – 4 Drywall Tech’s, earning \$30.00/hr can complete a new home drywall job in a full week at 40 hours each. What are your actual labor costs for this job?

A) \$5200.55

B) \$6850.00

C) \$7378.20

D) \$7507.20

The fact is, before we can calculate the Actual Labor Costs, we need to know much more information on our Actual Employee Costs. In order to do so, let’s make the following assumptions before we can properly determine our costs.

1. Our company is located in California

2. The workman’s compensation Rate 15% (or \$15.00 per \$100 of Labor Paid)

3. We have a total of 8 Employees and a \$3500 monthly company overhead

4. Each Employee Receives 1 Week Paid Holiday & 1 Week Paid Sick Leave

5. Each Employee receives \$100 Monthly Fuel Reimb., \$1000 Annual Christmas Bonus

6. Monthly Company Costs of \$200/month health care costs & \$50/month of Meal costs per employee

7. We also must figure in both Employer Paid Portions of the Federal and State Income Tax

In order to calculate the true costs of a job we must first understand our total costs per employee, per year, then we can break them down on an hourly basis.

To save you from complex math, and a headache, the Actual Hourly Costs of each employee, based on the above scenario, and including overhead is actually \$46.92

So the Actual Labor Cost of a full weeks job, with 4 Employees at 40 hours for a total of 160 hours is \$7507.20

From that point, you have a very accurate job or bid price. If you find that amount out of the job competitiveness, then you have to revisit your labor costs & benefits to see where you can cut.

If you find that you are still under market value, then you know you have room to raise prices, benefits , or markup %.

To help you with the hardest part of the above labor costs calculations I have developed this little tool that automatically calculates the Actual Hourly Cost of Labor for each employee and I would love for you to give it a try and let me know what you think. (this is an Excel application uses safe macros to save all employee data. Just click the “Continue..” button on opening)

Also here is a YouTube video showing you how it works

I would love to get your feedback on this.
Randy