Understanding construction labor costs is essential for good project management and improving construction KPI metrics. This post will give you some pointers on efficiently calculating and tracking labor costs.
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According to the industry-standard Construction Labor Market Analyzer (CLMA), labor cost percentages in construction lie between 20% and 40% of the total project budget.
In 2024, labor costs in the construction industry are expected to remain a significant portion of total project costs, typically ranging between 20% and 40%, consistent with historical trends. This percentage is driven by various factors, including the ongoing shortage of skilled labor, rising wages, and regulatory changes.
The Department of Labor’s overhaul of the Davis-Bacon Act has reinstated the “3-step” calculation for prevailing wages, which is expected to increase wage rates in regions with moderate-to-weak union presence. Additionally, construction wages in Canada are projected to increase by around 4% to 6% in 2024, following a similar trend observed in 2023 where wages saw a notable increase due to labor shortages and rising costs.
Overall, while material costs have seen some stabilization, labor costs continue to rise, driven by the demand for skilled workers and regulatory changes impacting wage structures.
Costs that fall under the labor umbrella include not just wages but also things like:
As you can see, construction labor costs are very multi-faceted. Sometimes, it may even be the most complex aspect of project financials.
Before diving into calculating labor costs in construction, let’s look at the average rates for various types of work. This is based on national data from the U.S. Bureau of Labor Statistics. It includes averages across the entire construction workforce for the specified types of projects.
Type of Construction Labor | Mean Hourly Wage (2024) |
Foundation and Building Exterior | $26.19 |
Utility Systems | $27.68 |
Non-Residential Building | $28.52 |
Residential Building | $24.73 |
Specialty Contractors | $25.41 |
We partnered with Construction Dive to outline the steps any contractor can take to be more strategic with their workforce management.
When calculating construction labor costs, the goal is to uncover the base rate and labor burden. These two metrics will help you accurately determine construction labor rates when added together.
Here’s how to calculate labor costs in construction based on these two metrics.
Your base rate is the unit (i.e., hourly) labor cost. You arrive at this figure by adding the various rates each project worker pays. Say, for example, you have a construction crew that looks like this:
Your base cost for this crew would be $30 + $28 + $25 = $83.
Position | Hourly Rate |
Foreman | $30/hr |
Concrete Pourer | $28/hr |
Framer | $25/hr |
Total | $83/hr |
Of course, this doesn’t tell the full story. As we mentioned earlier, there are other labor-related costs you need to factor in.
The labor burden metric identifies a few of these factors.
The labor burden includes state and federal fees for each worker. These fees pay for things such as the Federal Insurance Contributions Act (FICA), Federal Unemployment Act (FUTA), Medicare, and Social Security at the federal level, as well as the State Unemployment Tax Act (SUTA).
You’ll also typically need to pay General Liability and Worker’s Compensation.
According to the IRS, federal employee expenses as of 2020 are 7.65% (FICA) and 6% (FUTA). The percentage allocated to SUTA can vary, of course, depending on where you live. It might be 3% or perhaps even lower or higher. We’ll stick with 4% for the purposes of this example.
Based on these state and federal figures, here’s what your labor burden calculation might look like. Remember that you’ll also need to incorporate General Liability and Worker’s Compensation based on whatever rate your company has received.
Those figures (plus, remember, General Liability and Worker’s Compensation at your company’s rate) inform you of your labor burden for each employee.
From here, all you need to do is add the labor burden and cost for each employee, which gives you a construction labor rate of $97.6475 per hour.
Position | Base Hourly Rate | FICA (7.65%) | FUTA (6%) | SUTA (4%) | Total Additional Costs | Total Labor Burden |
Foreman | $30/hr | $2.295/hr | $1.8/hr | $1.2/hr | $5.295/hr | $35.295/hr |
Concrete Pourer | $28/hr | $2.142/hr | $1.68/hr | $1.12/hr | $4.94/hr | $32.94/hr |
Framer | $25/hr | $1.9125/hr | $1.5/hr | $1/hr | $4.4125/hr | $29.4125/hr |
Total | $83/hr | $6.3495/hr | $5/hr | $3.32/hr | $14.6475/hr | $97.6475/hr |
While our calculations thus far give you a decent approximation, they’re not perfect. In addition to leaving out General Liability and Worker’s Compensation, we haven’t incorporated benefits – another cost that varies far too widely across North America for us to provide a meaningful generalization.
Incorporating these costs on your own is simple, however. Just divide the monthly expenditure on these items by the units of work (hours), and you’ll have your figure.
However, what may be less obvious are the inefficiencies you also need to account for. These can be staggering.
Analysis has consistently shown that a large percentage of workers (43% according to one study, to be exact) exaggerate the number of hours worked. One commonly-mentioned statistic from the American Payroll Association indicates 42 minutes of time theft per day per employee.
If you don’t include this figure when calculating your labor cost percentage in construction, you may find yourself constantly puzzled about cost overruns.
Thankfully, this is also simple to address. At an average of 42 minutes daily, tack an extra 70% of one hour’s wages to your worker’s daily base cost.
This will give you a conservative estimate of how much the worker costs you, including unproductive time.