Include wages, payroll taxes, workers' comp, overtime, and benefits for the period.
IRONGRID logs hours per job at each technician's rate, giving you the labor cost data behind this calculation automatically.
What counts as labor cost
Many contractors only include base wages in their labor cost calculation, which understates the true cost and makes margins appear healthier than they are. Your total labor cost should include:
The true cost of an employee is typically 1.2 to 1.4 times their base wage once taxes, insurance, and benefits are included. This difference, known as labor burden, is why many contractors underprice jobs when they estimate based on wage rate alone.
Frequently asked questions
What is a good labor cost percentage for a contractor?
Most contractors target labor costs between 25 and 35 percent of total revenue. Labor cost percentage above 40 percent is a margin warning sign. Below 20 percent is unusually low and worth verifying that all labor costs are being captured.
What should I include in total labor cost?
Total labor cost should include wages paid to field employees, payroll taxes (employer share of FICA), workers' compensation insurance, overtime premiums, and any benefits you provide such as health insurance or retirement contributions. Using just the base wage understates your true labor cost and will make your margins look better than they actually are.
Why is my labor cost percentage above 40 percent?
Labor cost above 40 percent of revenue typically points to one or more of these issues: poor scheduling that leaves gaps between jobs, excessive drive time between appointments, overtime from poor planning, underpricing on labor-intensive jobs, or crew productivity problems that cause jobs to take longer than estimated.
How is labor cost percentage different from labor burden rate?
Labor cost percentage measures what you spend on labor relative to your total revenue. Labor burden rate measures the true total cost of an employee compared to their base wage, accounting for taxes, insurance, and benefits. Both are useful: labor burden rate helps you price jobs correctly; labor cost percentage tells you whether your overall labor spending is in line with your revenue.
How can I reduce my labor cost percentage?
Reducing labor cost percentage can come from tighter scheduling that reduces gaps and drive time, more accurate job estimates so labor hours match what is billed, better crew productivity through clearer assignments and on-time material delivery, and pricing labor-intensive job types correctly rather than bidding them low to win work.