Labor Cost Management in Construction

If you want to run a successful construction business, you must find a way to streamline your costs. Out of the different expenses you’ll encounter, labor costs tend to be the more complex ones. This is especially true if you’re working with lots of contractors and you have to use construction time tracking software to keep them all in check.

In this article, we’ll go through the main labor cost categories, and we’ll explain what they stand for. After that, we’ll share a few tips that should help you manage these costs better.

Labor Cost Basics

There’s much more to labor costs than simpler salaries. You also have to think about taxes and various types of benefits. When everything’s said and done, you’ll have to contend with massive expenses that might set back your projects.

• Salaries and Wages

Depending on whether your staff is unionized, current market prices, and location, employee paychecks might be significantly lower or higher. Generally speaking, you should focus on non-unionized labor, as these employees usually have lower salaries.

On the other hand, if you go with non-unionized subcontractors, you’ll have to worry about wage fluctuation. Market prices have a major impact on how much you’ll have to pay. So, if you’re located in a big city with a limited supply of construction experts, you’ll have to spend a lot of money to form your teams.

The prices for specialty workers are even higher due to high demand and low supply. Forming a team is especially troublesome for new companies that don’t have a reputation and can’t offer the same money as bigger construction businesses.

• Benefits

Benefits and allowances are something where you can save a lot of money. Each company has the option of providing (or not) certain benefits to their employees to entice them into signing contracts. Keep in mind that the government might prescribe certain requirements for each business.

For example, as someone working in the US construction industry, you have the right to receive overtime pay, which is 1.5 times the regular wage. Furthermore, according to PPACA, employers who have more than 50 staffers should also provide full health coverage to their permanently employed workers.

It’s worth noting there are certain rules between unionized and non-unionized labor when it comes to benefits. In other words, workers who aren’t unionized usually get much fewer benefits compared to their unionized counterparts.

• Taxes

Among other things, you have to cover a part of each worker’s social and Medicare taxes. You’re also responsible for each employee’s unemployment taxes. As for the unemployment taxes, they are regulated by state and federal governments and can vary depending on your location.

Besides covering taxes, you must also consider associated costs. For example, you’ll have to pay administrative expenses related to tracking, calculating, submitting, and withholding employees’ work hours. Another thing we should mention is that employment taxes are submitted each quarter, while unemployment taxes are calculated once a year.

• Continuous Education

Education is important in every field, especially construction. Although this industry might seem static, scientists have developed numerous advanced solutions in the last few decades. You’ll also have to teach your staff how to adapt to new software.

While extra education will significantly increase the efficiency of your staff, the initial expenses for this training can be devastating even for stable businesses. To make matters worse, training is done during billable hours, in a classroom or office you’ll have to rent.  

Nevertheless, if you manage to survive financially, you’ll have a well-trained, effective staff on your hands. Construction employees who have gone through rigorous training are usually much faster and can make better and faster decisions. We must not forget that continuous education also increases employee retention.

Managing Labor Costs

The good news is that there are lots of different ways to improve your construction labor cost management. Besides getting acquainted with the basics, you can also improve your planning, cost monitoring, and analysis.

• Focus on Efficiency

Savvy construction managers have a knack for optimizing their budgets and resources. Among others, they know how to squeeze the most value out of each worker without causing burnout. Furthermore, through better resource policies, managers are able to minimize downtime, which is so common in this industry.

Managers use advanced software to schedule tasks and reroute employees toward priority activities. They also know how to maximize each person’s skill set for better results.

• Prioritize Safety

Many companies aren’t willing to invest in safety. They’ll do the bare minimum just so it appears they care about their staff. Not only is this unethical, but it can also affect your bottom line. Injuries will significantly affect your productivity, forcing you to look for new team members during the middle of a project.

Safety issues can also lead to expensive litigations and will indirectly affect your company through reputation damage. On the other hand, focusing on safety will increase retention rates. It will create a positive work environment where each employee can give his best.

• Improve Inventory Management

Through better inventory management, we’re able to optimize labor costs. Good inventory management practices help your staff on a daily basis. Having just the right amount of materials, tools, and other equipment prevents trips to hardware stores and construction site delays.

Even worse, if you don’t properly plan your inventory, you might be forced to wait for equipment to arrive from another location. This is especially troublesome if you’re waiting for machines and materials from abroad. By providing your team with the right tools, you’re more likely to finish the job on time and reduce employee stress.

Last Thoughts

Construction labor expenses are a very complex topic. Not only do employers have to worry about wages, but they also have to calculate taxes, benefits, and other related costs. This is why you have to implement fantastic practices that will reduce these expenses without affecting the quality of work.

You should introduce better inventory management practices and prioritize safety. Find ways to help each person on your team and boost their individual efficiency.

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