Building a budget is all about understanding how to do Construction Estimating Services accurately. Labor costs are 40-50% of the total cost estimate. That’s why they can make or break a project. When it comes to finding accurate labor costs, every contractor must keep several factors in mind. Regional variation is one of them.

Skilled tradesmen’s wage rates vary widely across all the US states. In the US, general contractor fees range from $50 to $150 per hour, which is expensive compared to other countries.

An average construction laborer earns about $20.93 an hour, with the 75th percentile at $21.88 and top earners near $29.33. But that’s not all! The real construction labor cost is more than just wages. Benefits, payroll taxes, insurance, and overheads can add 50% to 70% on top of base wages. 

If you want to avoid budget overruns and keep profit margins healthy, estimating every single one of these individual costs becomes necessary. That’s where we come in! In this post, we’ll walk through how to calculate labor costs step by step. You’ll learn formulas, real numbers, and tips. 

Step 1: Break Down the Project

Finding the lump sum of labor cost in a jiffy is not easy. As said earlier, total labor cost is a collection of various other small individual costs. That’s why it is necessary to break down the entire project into single laboring tasks. This will not only help you create a database for costs but also make the entire process of finding labor costs much easier. 

Breaking down the project into smaller chunks will also help you ensure accurate and precise results. So, you won’t face budget overruns or delays due to inaccurate values in the future. Here are the potential subsections you can break it down into:

• Labor for pouring the foundation
• Labor for framing walls
• Labor for installing wiring
• Labor for painting

After breaking down into the related segments, you need to find the accurate number of labor hours. Remember that the labor hours are inversely proportional to the number of laborers. The more labor you have, the fewer hours it’ll take to complete the task. Here are examples of calculating the hours for different tasks:

1. Concrete pour: six workers for 100 hours = 600 labor‑hours
2. Electrical: three electricians for 80 hours = 240 labor‑hours

Step 2: Establish Base Rates

Now that you have an idea of the total hours needed for each task, it is time to create base rates of labor. These base rates are going to set the foundation of your total labor costs. So, make sure every single one of them is accurate. 

The best way to ensure accuracy is to consult with suppliers and subcontractors. You can also use a cost database from estimating software. While finding a database, always use regionally accurate lists. If you do not have a specific number, then write down the ranges of base rates and create an average. Here are some examples: 

• Laborer: $20–$29/hr (avg. $20.93)
• Carpenter: roughly $29.31/hr median 
• Electrician: often $29/hr avg 
• General contractor overhead: $50–$150/hr 

The sum of these numbers will act as a starting point for the cost per hour.

Step 3: Account for the Burdened Rate

Base wages aren’t the final answer. You can’t just multiply the base rates by the number of labor hours and expect an accurate labor cost estimate. Adding labor burdens helps deal with any possible hiccups throughout the project timeline. Here are the additional labor burdens you need to be aware of:

• Payroll Taxes (FICA, FUTA, SUTA)

The US government has imposed tons of payroll taxes. That’s why payroll taxes are the biggest surcharge that adds a hefty sum to the total labor cost. For example, a $30/hr base wage with a 20% burden means $6/hr extra, totaling $36/hr. In the US, burdened rates can be 50–70% higher than base wages. We will highlight some of the top ones individually: 

1. Federal Insurance Contribution Act (FICA)

This is a combination of two taxes that fund the Social Security and Medicare departments of the federal government. For social security, there is a flat tax rate of 12.4%, which is implemented on the first $128,700 earned by the employee. 6.2% of the amount is paid to Social Security, whereas the 6.2% is for you to withhold from the wages of employees. The medical tax is much less (2.9%). The employer has to pay 1.45% to the medical department and withhold the other 1.45% from the wages. 

1.  Federal Unemployment Tax Act (FUTA)

As the name suggests, this tax directly funds the unemployment insurance programs of the government. The rate for this one is 6% of $7000 for every employee. 

Tip: Pay the FUTA tax before it is due in each tax quarter and get a tax credit of 5.4% back!

1. State Unemployment Tax Act (SUTA)

This state collects this tax to help laid-off workers. SUTA is different from FUTA and FICA because the rate is not the same for every employer in it. It keeps varying from state to state. For instance, the SUTA tax rate ranges from 2.4% to 5.6% of labor’s taxable earnings. 

• Health Insurance

Health insurance has a great influence on your expenses and labor compensation. Businesses of all sizes need to bear their direct and indirect costs in mind while creating accurate labor costs. We suggest exploring Health Reimbursement Arrangements to deal with healthcare costs. 

• Paid Leaves

Annual leaves, sick leaves, and public holidays are prime examples of paid leaves that add a great deal to the overall labor costs. While US law does not force businesses to give paid leave, it is necessary to boost productivity and labor morale.

• Employer Overhead

The overhead costs are multiple items that are essential to understanding the true labor cost of your construction project. These include training expenses, onboarding costs, and utilities to support employees. 

Step 4: Calculate Task Costs

Now comes the part to mathematically calculate the original labor cost of your whole construction project. You can use the following formula for that:

Labor cost per task = hours × total hourly rate

Example:

Concrete crew = 600 hrs × $36 = $21,600

Electricians = 240 hrs × $43.50 (if $29 + 50 % burden) =  $10,440

Step 5: Add Contingency and Markup

Even though you have accounted for every single thing, there is still a decent possibility that unexpected issues will add more expenses to the total labor cost. Therefore, adding a 5–10% contingency becomes necessary. Also include a markup for overhead and profit. That could be another 10–20% of labor costs.

Quick Percentage Method 

If you do not have the time to go through all the necessary steps and need a fairly accurate labor cost estimate, consider using the Rule of Two. Labor often represents 40-50% of total project costs. So on a $500,000 build, assume $200,000-$250,000 for labor. However, this value won’t be near-perfect, so try adding contingency funds to the total estimate. 

Tips to Get a Perfectly Precise Labor Cost Estimation

The streamlined plan explained above would serve you well if executed properly. However, if you want to solidify the accuracy of your cost estimation, here are some ideal tips:

• Compare With Industry Benchmarks

Always compare your cost values with industrial databases. Check that your hourly rates align with industry norms. You can consult with Construction Estimating Companies or subcontractors to get an idea of the current labor wages. 

Also, pay attention to prevailing wages for public work. In unionized or public contracts, rates can be 50% higher and come with strict rules under the Davis-Bacon Act. 

• Use Tools & Software

Tracking every cost manually is tedious. It can also lead to serious errors if you are working on large and complex builds. A small miscalculation in labor hours can throw off your budget by thousands. This will cause a budget overrun or unexpected delay. So, what’s the solution? We suggest you turn to digital tools for improved accuracy and speed.

Programs like PlanSwift, ProEst, and Buildertrend offer features like:

• Preloaded labor cost databases
• Customizable cost libraries based on trade or region
• Automatic formula calculations for labor hours and burdened rates
• Project templates and duplication for repeatable tasks
• Integration with accounting and scheduling tools

These programs can auto-calculate labor based on square footage, hourly rate, and team size. It eliminates the need to add data repeatedly. Some programs let you run “what-if” scenarios. This helps adjust crew size to see how that affects completion time and cost.

Additionally, there is no limit to the number of estimates you create. So, comparing initial estimates to revised versions becomes easier. As a result, you get a clear audit trail and an accurate total cost estimate. This is also useful if you are a contractor presenting professional, defensible estimates to clients and subcontractors.

• Review Projections During the Build

Calculating labor costs accurately at the start of a project is essential, and we know that. However, real control comes from reviewing and adjusting those estimates during the build. There are tons of factors that can take things off the desired path during construction. 

For instance, labor costs are not fixed, and they can shift quickly. Weather delays, absenteeism, rework, or changes in the construction sequence increase these costs. The best way to deal with this is to set up a system. That’s how you’ll track actual labor hours on a weekly or biweekly basis.

1. Analyze & Relocate

You can see timesheets, site logs, or labor-tracking apps like Raken or ClockShark. This will help compare the data to your original estimates. Focus on the following three aspects:

• Tasks taking longer than expected
• Crews working overtime 
• More laborers working than expected

If you estimated 300 hours for framing and your crew is already at 250 hours halfway through the task, you need to re-forecast immediately. That’s how you adjust budgets and timelines. Besides, it helps reallocate labor to avoid overruns.

1. Look For Performance Gaps

Let’s say one subcontractor is consistently over hours. On the contrary, another finishes ahead of schedule. This data is enough to make informed staffing or training decisions. So, it is true that mid-project reviews also help you spot performance gaps. Over time, you’ll easily fine-tune future estimates based on actual production rates and not just assumptions.

Conclusion

Total labor cost estimation can impact the profit margin of a construction project. Wrong estimates may lead to budget overruns and even delays. So, it becomes extremely necessary to find the most accurate way of calculating labor cost. We have provided a complete, streamlined plan and a quick rule of thumb to get an ideal labor cost estimation. Also, we suggest using tools like CAD Drafter, Bluebeam, RS Means (zip-code-based pricing), and Planswift to ensure precision. Get started with our comprehensive plans to execute the project confidently!