One of the most important components of bidding construction jobs is calculating your construction labor burden. Payroll Services, Workers Compensation and Payroll Taxes are the largest part of this calculation – other indirect costs associated are Health Insurance, Per Diem, Payroll Processing fee’s and 401(k) or other benefits offered to your employee’s.
Here in Florida for example – we have State Unemployment, Federal Income Tax and Federal Unemployment Tax that get levied for our employee’s every paycheck. The state unemployment rate for a new business in Florida is 2.7% which is levied on the first $7,000 an employee makes. Federal unemployment tax is 0.60% for all states in the US. This is also levied on the first $7,000 an employee makes in income. Keeping your labor burden construction costs low is important. It is important to retain your employee’s and reduce employee turnover so that the unemployment taxes get capped at that first $7,000 in wages you pay an employee. Federal income tax is 7.65% on all wages and that is made up of Social Security tax and Medicare – this cannot be taxes so turnover isn’t a factor.
In Florida, with regards to payroll taxes the average labor burden rate in construction starts at 10.95% for the first $7,000 an employee earns (labor burden before cutoffs) and that number drops down to 7.65% in taxes after that employee makes $7,000 annually (labor burden after cutoffs).
Insurance agents specializing in construction can get you the second part of the puzzle in calculating labor burdens for your construction company. That part is the cost of a construction company workers compensation policy. Surprising to many the base cost of Work Comp in Naples, Florida is the same exact base cost as Work Comp in Fort Myers, Florida. The State of Florida sets the rates for workers compensation via The Florida Department of Workers Compensation – which takes guidance from NCCI which is the governing body that controls much of the data in the state. These rates are the same for all Florida cities.
The rate for painting contractors work comp insurance is less expensive than the rate for roofing contractors work comp insurance. A roofing contractor work comp policy (class code 5551) in 2022 costs $11.41 per $100 in payroll with no credits or experience modification factor applied. A painting contractor work comp policy (class code 5474) in 2022 costs $7.14 per $100 in payroll. As you can see – the lower the risk – the lower the cost per $100 in payroll. The cost for office staff is $0.16 per $100 in payroll.
To calculate the labor burden for your construction company you will add the percentage of the work comp costs to the payroll tax percentage discussed above. Those total percentages will equal your entire direct labor burden before and after tax cutoffs. When evaluating insurance agents that specialize in construction or payroll services that specialize in construction you need to make sure they are able to calculate these labor burdens when offering you work comp coverage.
Some indirect costs to include in the labor burden calculations are 401(k) matches, health insurance premiums and the cost of processing payroll. Please call or email us here at The Dane Group to assist with any business planning or labor burden calculations.
