Labor Burden in Construction – Proper Rate Formula

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Labor burden in construction is a value added on to the respective hourly labor base wage to to determine the total cost per hour for a particular trade or employee. Labor burden rates are used extensively with estimating and recording actual results. The key to labor burden is that the rate is NOT universal. The value is different per company and in some cases per trade/employee. The rate is highly dependent on the various employee benefits provided and the structure of the organization.

Labor burden is one of the soft costs in construction. It is comprised of five distinct cost groups including taxes; mandatory and voluntary benefits; compliance requirements and human resources management. Each of these five distinct groups of costs are explained along with the associated impact on the formula is covered in the first section below. With knowledge of the respective cost groups, the labor rate formula can then be designed and developed. With the core formula set, management can then calculate the cost per hour and in some cases per trade or employee. Finally, the concept of labor burden and the proper rate is not pure and therefore some nuances are important to take into consideration when applying the labor burden rate.

It all starts with understanding the five distinct cost groups composing labor burden.

Labor Burden Cost Groups

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