When it comes to knowing true labour costs as a business owner or manager, calculating hourly or weekly wage costs is just part of the picture. A more complete picture includes “labour burden.” A powerful software package, ERP VISUAL Enterprise includes labour costing techniques to identify these costs.
Consisting of all those “extra” costs above and beyond the pay scale of employees, labour burden is primarily comprised of payroll taxes, unemployment taxes and various forms of insurance. Field labour burden also includes general liability; workers’ compensation insurance; paid holidays, sick days, and vacations; and medical insurance benefits.
Both field labour burden and office labour burden are calculated as percentages and should be added to your payroll costs. Field labour burden is a direct cost, while office labour burden is an indirect G&A (general and administrative) cost.
It is necessary to check bid documents and specifications, or call contract administrators to ensure figures are correct. Most labour burden items are assigned as a fixed percentage that will vary little when calculated into labour burden. This doesn’t change, whether you’re calculating labour burden for prevailing wage projects or non-rated ones.
Other labour burden items, such as sick pay, paid holidays, and vacation time, are based on accumulated paid non-work time (usually measured in days or hours) and need to be calculated differently when bidding rated or non-rated jobs.
The typical range for ERP labour burden is between 12 and 15 percent for office personnel, and 20 to 35 percent for field personnel, depending on the amount of workers’ compensation insurance for each job classification.
ERP labour burden calculations should be reviewed every four to six months and adjusted whenever insurance rates change, or profits are thinning. It is necessary to review labour burden calculations if bidding on rated jobs and you have not done so in a while.
Accounting software is available that enables managers to produce financial statements that display labour burden “budgeted” for actual field and office payroll, compared to “actual” accumulated expenses for labour burden items. This is an excellent method for ensuring that calculated labour burden percentages are adequate.
It is only with sophisticated ERP software like Visual Enterprise that a company can track its labour recovery of costs accurately. Available from LSA Australia Pty Limited this is a comprehensive, fully integrated ERP solution covering Manufacturing, Financials, Quality, CRM, Time & Attendance, Lean, BI and warehouse management.