Sometimes there’s truth to the old adage that if you want something done right, you do it yourself. And usually that’s when you’re working on a passion project that requires your own individual creativity. But smart business owners with growth mindsets know that delegating is actually one of the most important skills they could have. For most of us, construction is one of those areas where it’s smart—and often safest—to hire someone to do the work for you.

If you want a construction job done correctly, it’s important to hire the right people. From supervisors to subcontractors, you need to trust that everyone will do a thorough and efficient job to help your business stay successful. That much is clear.

What isn’t clear is the construction labor cost as a percentage of the entire project. To hire high-quality employees, you’ll have to pay more. But how much is too much? How do you ensure that you’re maintaining a high standard of quality without sacrificing profit margins?

We’re here to help you understand how to calculate labor cost formulas that are right for your team. Read on for helpful resources for getting accurate projections for every job, and learn how construction bookkeeping and accounting software can help streamline the process.

How to Calculate Labor Costs: The Formula
Calculating the cost of labor will vary from project to project. While the construction labor cost percentage is more consistent, the actual number will change for every project.

The bad news is you’ll have to use this formula for every bid you submit to get an accurate projection for your labor costs. The good news is that once you have a goal for your project, it’s much easier to avoid overspending on labor or other surprises.

Direct vs. Indirect Construction Labor Costs
The two major factors that determine your budget for labor on any construction site are:
• Direct costs
• Indirect costs

Direct costs, as you might imagine, are simple to calculate. They cover the wages you pay your employees. Indirect costs are all the other variables that your company must pay for but aren’t always reflected in the paychecks.

Indirect costs include things like worker’s compensation, employee benefits, vacation, payroll taxes, training, employee development, and any uniforms supplied by your business.

Indirect costs can add up quickly and must be included in all your accounting, particularly when you’re putting together a bid for a new project.

If you want to know the cost of each employee to your company, you can add the direct costs and indirect costs and see the yearly amount your company needs to cover. More importantly, you should always know the labor burden to your business—that is, how much money you …