Construction Estimating: How to Get Accurate Labour Rates

 
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We discuss how to get accurate construction labour rates for your projects and provide practical advice on costing labour in your estimates.

So you’re a construction contractor. You want to win projects, boost your profit margins and deliver the goods on time and to budget. 

Easier said than done. 

The challenge is this - it’s pretty hard to get any of these right if your up-front bid is wrong.

When it comes to construction estimating, your costs need to be high enough to keep your profit margins intact, but low enough that you’re not losing out to cheaper competitors.

This isn’t an easy balancing act to navigate.

One of the key components that affects this job costing is your construction labour rates.

And in a time of rapidly rising inflation – understanding how to cost your working hours is a real challenge. 

Defining your construction labour costs

Before we get into the wild west of market labour rates, it’s first important to break down what your construction labour costs will be.

There are two main types of workers that you need to be aware of:

  • Direct costs – Any wages or fees for staff that work on specific projects, such as roofers, painters, builders etc. 
  • Indirect costs – Staff who don’t work on projects, largely administrative roles such as accountants or lawyers. 

It’s important to understand which workers are which, as it will affect your construction estimating. 

Generally, contractors will charge a flat percentage rate to all projects to cover overheads (including rent, licences and other non-labour-related costs).

It’s also important to be aware of whether you’re working with employed or contracted labour, as this will also affect your costs.

For employees, there are a series of other costs and considerations you need to be aware of, such as: 

  • Payroll taxes
  • Insurance
  • Holiday and sickness pay
  • Training 
  • Any other relevant benefits

Again, these can be tricky to quantify and cost – but they do need accounting for if you want your sums to add up.

Like with indirect costs, a flat percentage above the actual labour rate can help account for these. 

Infographic about how to define your construction labour costs

How to find accurate labour market costs

“Determining accurate labour rates is crucial for construction estimating, as inaccurate rates can lead to budget overruns or underbidding on projects.”

So, here’s the tricky bit: How on earth do you know what to pay your workers?

What you want is a rate that’s fair for both sides and reflects current market rates without risking your budgets and profit margins.

If your rates are too high, you might end up overbidding on the project and losing out – at which point, nobody’s getting paid at any rate.

So, it helps to get it right the first time. In a period of high inflation, this is more important than ever.

Perhaps a few years ago you could rely on construction labour rates remaining roughly the same from year to year.

But as prices rise, so too will wages – so it’s important to be aware of how things have changed. 

Luckily, getting construction labour rates right isn’t quite a guessing game. There are various sources you can consult to get information on current rates.

Here are some of the most useful:  

  • CIJC – The Construction Industry Joint Council (CIJC) represents both construction employers and workers.

They work with unions to establish minimum rates of pay and other T&Cs for workers in the construction industry.

They regularly publish the agreed pay rates, which often act as a benchmark for the industry. 

  • ONS – The Office for National Statistics (ONS) publishes an annual survey of employee earnings in the UK. This isn’t an industry-specific publication, but it does include information on specific sectors like construction.  
  • Paid services There are also specialist companies who research and report on changing labour rates for their clients. Popular examples include the BCIS and Payscale.
  • Publications – Subscribing to industry publications such as Building magazine and Construction News can also help, as they often report on changes to the construction labour market and how they affect contractors. 

“It’s not enough to take a generic rate or ask project managers what a job will cost anymore. You’ve got to get them right to make sure you win the job, and when you do, it’s correct.”

  • Danny Mitchell, Archdesk Head of Content and former Construction Estimator 

Infographics about sources to get accurate construction labour rates

These publications should give you a more data-driven understanding of how labour costs in the UK are changing. 

How to account for construction labour rates in your estimates

Even when you’ve got an accurate price for your construction labour costs, pricing up your job estimates can still be a challenge. To win a project, you need to create a detailed construction estimate, including materials, labour costs and overheads.

To cost working time, you need to understand how long a job is going to take as well as how much the workers themselves will be paid. 

By far the best way to do that is to use the unit cost method.

This method aims to create a price for labour based on the ‘unit’ of work being completed, whether that’s tiles or floor being laid or area of wall to be built. 

To see this in action, let’s assume a contractor is laying a floor in a new house and we’re trying to calculate their labour rate based on the amount of floor to be laid.

Let’s assume there is 80m² of floor to be laid. Based on historical information, you know that a team of two contractors can lay about 5m² of floor an hour. 

Using these figures, we can come up with a ballpark figure for how much to charge per m².

  • Let’s assume the floorers are paid £18 an hour, bringing the hourly rate to £36 p/h for the team
  • If it takes both floorers an hour to lay 5m², we can assume a time of 0.2 hours per m²
  • Therefore, £36 p/h multiplied by 0.2 gives us a rate of £7.20 per m²

Once you’ve calculated this cost, it’s easy to apply to flooring jobs of really any size. 

Of course, external factors will always affect your time estimates and very few jobs will finish exactly on schedule.

So, it’s important to always collect timesheet data on how long jobs actually take and update your estimates accordingly. 

Archdesk: A new frontier for construction estimating

Like many things in the world of construction, getting accurate construction labour rates, and understanding how to use them in your estimates, involves a lot of trial and error. 

Luckily, technology like Archdesk can make that task a LOT easier. Here’s how: 

  • Automatically generate sales quotes including images, notes and T&Cs
  • Track and access live reports on your ongoing projects so you can clearly see how the reality of the project matches up to your estimates – and use this to inform future bids
  • Access integrated time tracking, so you always have an up-to-date outline of what hours are worked on which projects – and how that matches up to your estimates
  • Automatically prepare contract renewals from particular subcontractors
  • Get complete control and visibility over vendors, contracts, regulations, buyers and spending

If you want to find out more about how Archdesk can help you improve job costing and construction estimating, try it today

FAQs 

How much is a labourer per hour?

Labourers will charge different rates depending on the work they’re doing. Unskilled labourers may charge £10-£12 an hour whereas skilled labour could be upwards of £15-£16. Inflation has made these figures increasingly volatile, so it’s important to check the most recent figures when costing a project. 

How do I work out a contractor’s rate UK?

To understand a contractor’s rate in the UK, consult publications like the CIJC or ONS, which regularly report on changing labour rates. 

How much should I charge per hour of work

To understand how much to charge for construction projects, contractors use the unit cost method. This estimates the amount to charge per eg square foot of tile/roof laid, based on the average amount of time to complete.  

Karolina Dobrowolska
Content Marketer

 
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2024-05-18 11:25:01