Estimating Labor when Wages Vary
Do you consider which workers will be doing what parts of the work when projecting the labor costs for a job? April 22, 2014
Question
For those with employees at different pay rates, when estimating a job do you consider who is going to be doing the different tasks in a job to calculate your labor costs? Or do you just use an overall shop rate? Or do you use a rate based on type of work ($50/hour for build, $80/hour for finishing, and $125/hour for installing)? Which is most common/ best method?
Forum Responses
(Business and Management Forum)
From contributor F:
We use the highest paid worker and add our burden to that to get our rate. What you will notice is that hours to complete a project will vary so we watch the dollars. It would have 100 hours and $1000 in direct labor costs in the bid and it takes 120 hours in normal circumstances and costs $1000 in direct labor then your pay structures are working. Some people blend the rate of their top group. Installation should have a different rate than shop rate if that is all the employee does.
From contributor L:
I've found that our highest paid man ends up providing a cheaper result. We price by work center time. Part count through a work center with an average time per part is used. There is also a line for fudge factor based on your experience with the type of work or in some cases who you are dealing with. Pricing is an inexact art!
From contributor O:
Estimating the cost for a job with employees depends on the type of work they are doing and how efficiently they can do it. It is always helpful to estimate the amount paid for them according to their work efficiency. Suppose if you are paying $30 to an employee and he is doing that work in two hours and some other employee is doing that in one hour. Paying $50-60 to the second employee is a better thing.
From contributor A:
Often in shops the lead guys (highest wage) will do many aspects of the entire project on demand as required. It would be an assumption that the project will go as originally planned. Employees can come and go in a chaotic manner. They quit or are asked not to come back. Suddenly the boss has to come from behind his desk and is standing at a tablesaw for three days straight. My example may be on the extreme side, but it makes a strong argument for estimating labor based on shop rate.
