Labor Burden! Not Labor's Tyler Durden.
Updated: Jun 3, 2022
It's not a figment of labor's imagination. Labor burden does exist. What exactly is labor burden? It's the costs associated with payroll, which include payroll taxes and insurance paid by the employer. These are costs you should factor in when you bid on a job or produce job schedules and financials. The whole idea is the get the true picture of what it costs to complete a job. Your job schedules may look great as they are without allocating labor burden, but is that really an accurate representation? This isn't just an accounting trick, it's a useful tool to help you run your business.
So how do you calculate labor burden? Great question! Fortunately Construction Accounting and Financial Management by Steven J. Peterson provides an easy calculation to find out! If you haven't picked up a copy of this book you should! I've uploaded an excel that will calculate your labor burden for you. You may have to make some changes to the spreadsheet to fit your business but it'll set you on the right path.
Try using one employee's data to populate the cells highlighted in blue on the attached spreadsheet, then see if it makes sense to use that as a basis to allocate burden across all laborers. The calculation should give you a percentage you can use when estimating total labor costs in the future, in addition to a reclassification entry to move the payroll taxes and insurance costs from general administrative costs to job costs. Feel free to reach out to me at email@example.com for any questions!