Overview
Accurately being able to estimate direct costs like Labor, Material, and Equipment Cost is key to producing estimates that do not leave money on the table and ensure profitable jobs. In this article we will review the process to accurately estimate the hourly rate of an individual and subsequently a crew rate.
Calculation Overview
We will first explore the cost of an individual employee and give some factors to consider when calculating on a complete hourly rate.
Factors to Consider
- Hourly Rate of the employee
- If the employee is salaried, divide their salary rate by 2,000. This is 40 hours a week for 52 weeks minus two weeks of vacation (80 hours).
- Workers Compensation
- Simply take your full Worker’s Comp yearly premium and divide it by the number of employees. Make sure to count yourself in that calculation.
- Once you have that cost, divide that rate by 2,000 to get to an hourly cost
- Business Insurance
- Similarly to Worker’s Comp, take your yearly insurance premium and divide it by the number of employees. Make sure to count yourself in that calculation.
- Once you have that cost, divide that rate by 2,000 to get to an hourly cost
- Employee Insurance Plan
- Also similar to Worker’s Comp (We’re not reinventing the wheel here), use your premium for providing employees insurance and divide it by the number of employees. Make sure to count yourself in that calculation.
- Once you have that cost, divide that rate by 2,000 to get to an hourly cost
- 401k Package
- Based on the employee’s salary / rate and your cash match (if applicable), you can calculate what the total possible value of the 401k plan could be if the employee contributed their full amount.
- This should be a yearly amount, that you can divide by 2,000 to get an hourly value based on the employee’s full contribution.
- Bonuses / Benefits
- If you offer Incentives, Bonuses, Gifts, Lunch Room Snacks or Company Swag (if you’re getting really picky).
- If these are group costs, add them up for them year and use the Worker’s Comp example to get that to an employee hourly cost.
- If these are specific to the employee, add those up individually.
Calculation Overview
Once you have the costs outlined above at the hourly rate, the calculation becomes simple addition.
Employee Hourly Rate + Worker’s Comp Hourly Rate + Business Insurance Hourly Rate + Employee Insurance Hourly Rate + Bonuses / Benefits Hourly Value.
This will give you a total rate per hour for having that employee on payroll and on a job.
Crew Rates
This become simple kindergarten math (or in my case freshman year of college), once you know the proper hourly rate for each employee. All you have to do is determine which employees are on a typical crew or at a minimum how many employees comprise a crew, and add the hourly rates together to get a total crew rate.
Conclusion
There are several factors to consider when accurately calculating the cost for an employee to be on a job. There are even more factors to include if you offer a stipend, provide a company vehicle and have loose restrictions on use, etc. However, using the above should give you an accurate value to charge for your employees.
