How to Cover the Cost of Non-Productive Time in Your Remodeling Estimates
As a remodeler you need to know what your labor costs are if you want to price your work properly and for profitability. Inside estimates, your estimated labor costs for any project must include everything required to compensate and support field employees. This labor rate is called the burdened cost of labor or your burdened labor rate. Of course, the total estimated cost is then marked up by a predetermined factor so the selling price also covers your overhead and planned profit.
Check out the Labor Worksheet below. An important consideration when determining the burdened cost of labor is the difference between the hourly pay you give an employee and the hours that they actually work producing income. When you add up all of the hours for paid vacations (one week, 40 hours), holidays (five days, 40 hours), paid time while attending training programs or trade events (10 hours total), as well as attending company meetings (2 hours, every other week, or 50 hours annually), where will that money come from if you’re not charging for it in your estimated labor costs?
How much is non-productive time costing your business?
Many remodelers I’ve worked with never even realize that they’re making this mistake. With the standard fifty-two weeks in a year and a 40-hour work week, your company pays each full time employee for 2080 hours. The time paid for non-productive hours, as listed above, totals 140 hours, or 3 ½ weeks. Look at row 54 of the worksheet. The wages alone to be paid to the employee total $2800.00. That doesn't even include other related costs paid by the business like payroll taxes, liability insurance and and workers compensation insurance!
No more guessing!
So, when you determine the burdened hourly rate to use in your estimates and for job costing you can't be guessing. To get the accurate rate you must divide the total annual cost to compensate and support each employee by the number of hours he or she will be working producing income. For the example above, you must collect enough money in 1940 hours of productive time so you will have enough money to pay the employee for 2080 hours. Non-productive time and other labor related expenses are easily calculated into a burdened labor rate using a spreadsheet like the one shown above.