What is labor cost? #
Labor cost is the amount of money a contractor has had to pay to have her/his workers complete a job. True labor cost is more than just the hourly wage you pay; it should also include items such as the Worker’s Compensation insurance you pay for in order to have your workers on site, the employer-side taxes you have to pay (e.g., FICA), any health insurance costs you cover, etc. Non-wage costs are sometimes called burden.
We at Knowify strongly encourage contractors to determine their labor using fully-burdened labor rates.
Example of labor costing #
A contractor assigns a foreman and two tradesman for 5 days to complete a job. They are able to get it done without any overtime. The contractor ends up paying the foreman $25/hr for the 40 hours, and each tradesman $20/hr. Altogether, the direct wage costs for the job are $2,600.
However, there are other costs that should be considered as well. The contractor also pays for health insurance and worker’s comp insurance, which she/he has calculated to cost around $6/hr on a combined basis. She/he also has to pay for the portion of FICA taxes. Altogether, the true, fully-burdened labor cost of the job ends up being closer to $3,500.
Labor costing in Knowify #
Knowify can help you properly burden your labor, and then will track your actual labor costs in real time as your employees clock in/clock out using the Knowify mobile app. (Alternatively, if you do not want employees to use the app, you can enter timecards in the office.) Knowify also provides overtime tracking tools for those who need them.
Setting up fully-burdened labor rates will help in your labor costing process. You can do so during the setup process or later on in the admin section.
For overtime, Knowify will allow you to set up rules for both daily and weekly overtime. As employees clock in and clock out, those rules will be applied and Knowify will identify overtime candidates. It will be up to the user reviewing time to split entries into overtime or double time upon approval.