Help for Small building contactors Part 2 Cheap Labour.

posted 18.05.2009
Part 2 of the recipro help for small business contractors concentrates on the idea of Cheap Labour.

Correcting your markup math won’t help you if you don’t know what your gross profit should be in the first place. The biggest errors occur when figuring overhead for labour. Contractors hiring employees for the first time often forget to add employment taxes to the base wage they use in estimates — that costs them about 8% right out of the gate. Forget insurance premiums, and it can cost you another 10%. Established companies avoid these elementary mistakes but often miscalculate what it costs to support holiday pay, sick pay and other benefits for “non-productive” time.



These costs should be built in to wage rates, but many contractors incorrectly base their calculations on the assumption that their employees work a full day every day all year long. The fact is that full-time employees are productive for between 1,750 and 1,850 hours per year. For another 150 to 250 hours, they’re getting paid for tasks you’re probably not charging for — Van runs for materials, setting up and breaking down tools and equipment at the start and end of each day, supervising subs, or just standing around trying to figure out what to do next.  One way to ensure that your true labour costs are covered is to calculate the cost of all taxes and benefits for each employee.



Or you can use this shortcut: The rule of thumb is that employees in companies with insurance and Holiday benefits cost between 45% and 55% more than what you pay them. If that’s not what you’re charging for them — plus adding your markup on top — you’re losing thousands of pounds for each employee every year.

More help on the way soon!

 

 

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