- Liability insurance
- Employer’s cost of health and other employee benefit insurances
- Employer’s portion of contributions to retirement plans
- Estimated cost of providing company owned vehicles
- Allowances paid to employees for use of their privately owned vehicle
- Estimated cost of providing company owned mobile devices
- Allowances paid to employees for use of their privately owned mobile devices
- Estimated cost of providing uniforms
- Estimated employer’s cost of training, licensing and certifications
- Estimated cost of providing paid time off, including vacations, holidays, sick leave and any other paid time off
- Estimated cost of providing items too numerous and individually too inexpensive to specifically job cost when purchased, but which can become significant over time, such as small tools and supplies for production
- Estimated supervisory costs that are not being directly job costed
The above list may not be complete, and may vary from
contractor to contractor.
Some
estimators will go to great lengths to develop a comprehensive cost of
employing production staff and use it quite effectively in their estimating and
job cost budgets, only to find that the accounting department, in job costing
their payroll costs, does not recognize and account for the same components of
labor burden. This creates a built-in
price variance when analyzing budgets versus actual costs.
For
example, let’s assume that the estimator correctly predicted that work will
take 100 hours to complete, and estimated that the true cost of the employees
doing the work (including all possible labor burdens) was $45 per hour. The accounting department’s payroll
calculations only include and job cost the gross wages, payroll taxes and
workers compensation insurance, which adds up to $28 per hour. The job cost budget shows 100 hours with a
total cost of $4,500, while the actual cost to date shows 100 hours with a
total cost of $2,800. It is misleading
to say that actual costs beat the budget by $1,700 when the estimated hours
were spot-on! That $1,700 difference is
a price variance. Consider the same
project, except that actual results were 160 hours, job costed at $28 per
hour. The budget versus actual report
shows actual labor costs of $4,480 versus the budget of $4,500. It looks like
the work was performed on budget, but it actually took 60% more time to do the
work than estimated!
Clearly, it is important to prepare budgets and job cost
reports consistently and comparably.
Budget versus actual reporting should avoid built-in variances and show
how production is really doing in light of the estimator’s plan.
Fortunately,
the payroll system of Sage 100 Contractor was designed for the specific and
unique needs of contractors. Payroll
calculations can be designed to include all such labor burdens as mentioned
above in the cost of employing workers.
Additional labor burden costs can be calculated as a percentage of gross
pay, or per hour worked. These payroll
calculations effectively pull costs out of overhead expense accounts and make
them part of job costs and direct expenses with very little effort once they
are setup.
If you want to look more closely at how you are burdening
your labor costs, or how to add payroll calculations that you know you should
be including, give us a call.
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