How Do You Calculate Labor Costs in Construction?

The world’s population is increasing drastically. Lands and greeneries are transforming into highly-standing buildings and well-developed societies. This need of humans is increasing the demand for building materials and construction in our society. Nowadays, contractors get assistance from estimators to use construction estimating services. As a contractor or a construction company, you must know how to calculate labor costs in construction. This guide will help you explore how you can evaluate labor costs in construction. 

What is Labor Cost?

Construction companies hire workers and other personnel in a building project to complete the job perfectly. These workers may include excavators, electricians, masons, painters, and other construction workers. On hiring these experts, companies pay them for their jobs, and this expense is known as labor cost in construction. 

Why Labor Cost Estimation is Essential in Construction?

Labor Cost Estimation in construction is essential to calculate accurate overall budget estimates and generate high-quality bids. Ignoring labor costs during construction project evaluation is one of the major mistakes contractors make and faces significant problems during construction. And most of them cannot win bids due to missing entries and low-quality bids. Therefore, one must consider labor costs in construction project estimation to complete his project without hurdles. 

How to Calculate Labor Costs in Construction

In old times, people used traditional methods to calculate labor costs. It was a time-consuming method with more chances of human errors. Today, we have the option of digital estimation. Moreover, many contractors get assistance from subcontractors or calculators to evaluate construction labor costs. Both are unreliable methods. A construction company cannot get precise and accurate estimates using these methods. 

How to Calculate Labor Costs in Construction

Average Construction Labor Rates

Types of Construction LaborMean Hourly Rates
Foundation and building exterior $ 19.65
Utility systems $ 20.98
Non-residential building $ 21.48
Residential building $ 18.68
Specialty contractors $ 19.94

Method to Calculate Labor Cost

If you want to become an expert in labor cost estimation, you must follow the footprints of estimators. They follow the following methods to calculate construction labor costs. 

  • Unit Pricing Method 

The unit pricing method benefits labor cost calculation, particularly in project design and bid estimations. In this method, estimators use the following formula to calculate labor cost:

Labor Hourly Rate x Time Required to Complete One Unit.

Let’s take an example! 

You have a project to construct a wall. How much labor cost will it take?

Labor hourly rate                                       = $40 per worker

Time Required to Complete One Unit       = 12 hours  

Labor cost                                                 = $40 x 12 hrs

Labor cost                                                 = $480

It is a direct labor cost. If you want a more precise figure, you can also consider the material expense of the construction project, overhead expenses, profit, supervision, and other necessary markups in your bid. 

From where will this data come? 

Suppose you do not know the unit pricing for individual types of labor; you can use a cost database to collect essential data. Cost databases contain updated pricing information collected from the worldwide construction industry. 

Calculate Unit Price

If you want to calculate the unit price, follow the below steps:

  1. First, calculate labor costs using the formula mentioned above. 
  2. Second, figure out all material costs individually.
  3. Third, calculate the total direct cost by adding material cost to labor cost. 
  4. Last, calculate the labor cost per square foot by dividing the total labor cost by the square footage. 

Follow up….

You can add this data to the price cost database and do the same for the rest of the construction expenses. 

  • Square Foot Method

The square foot method has strategic benefits over the Unit Pricing Method. It is a profitable budget tool that can give accurate estimates for last-minute high-quality bid generation. Engineers and architects mostly require budget evaluations in the early stages since they refrain from reworks and alterations after valuable time investment. Therefore, contractors use the square foot method to align with them for budget pricing. 

The square foot method is the fastest way to calculate construction estimates, including labor costs. It uses historical data for the construction budget estimation. 

Collect More Data to Hit the Accurate Figure Using the Square Foot Labor Cost Calculation Method!

  • Rule of Two Method

In the construction industry, experienced contractors use the rule of two methods for calculating construction labor cost since it depends on the experience and expertise of the estimator. For instance, professionals know the exact percentage of labor expense in a construction project, such as 40-50%

If you know your labor cost, follow these steps:

  1. First, multiply the labor cost by 2.
  2. Second, add 10% of contingency expenses to the figure calculated in the first step. 

If you do not know your labor cost, follow these steps:

  1. Use the cost database to identify your construction project labor cost. 
  2. Next, find the average labor cost and use it for further calculations. 

The rule of the square method needs critical thinking and technical expertise. You must be able to efficiently deal with your calculations or estimates according to your project’s custom items, difficult working conditions, complexities, and field conditions. This expertise will enable you to calculate the most precise and accurate construction estimates, particularly labor costs. 

Factors You Must Cover During Labor Cost Estimation

When calculating construction project labor cost, consider the following elements to get the most accurate figure, essential for flawless construction activities. 

  • Payroll fraud
  • Paid time off
  • Payroll taxes
  • Recruiting and training costs
  • Equipment such as vehicles and company phones
  • Worker’s compensation and other forms of insurance

Step-by-Step Guide to Calculate Construction Labor Cost

  1. Base Rate

Consider three construction activities to calculate labor costs! 

Lead                             = $40 per hour

Journeyman                = $25 per hour

Apprentice                   = $15 per hour

In this scenario, the base rate is $80 per hour

What is the base rate in labor cost calculation? 

It is a unit price that is considered for calculating the labor expense. The term gives a starting point to contractors and estimators so they can calculate precise and accurate labor estimates. 

What is the base rate in labor cost calculation?
  1. Labor Burden

The labor burden is the expense other than workers’ hourly rates. It may include benefits, incentives, bonuses, and other facilities offered by the company. 

Consider the following values to calculate the labor burden of each worker!

  1. Employees’ hourly wages,
  2. The number of hours they are available to work per year,
  3. Number of days they can off each year. 

Let’s suppose a $20 per hour to understand this concept!

  1. A person can spend 2,080 hours each year. Similarly, he can be out of the working station for 15 days yearly. 
  2. If the single shift is 8 hours, multiply the 15 days by 8
  3. Next, subtract the value from 2,080 hours to get the number of hours your workers work yearly. 

Here is its mathematical representation: 

15×8= 120. 2,080-120= 1,960.

The elements you can consider as examples:

  • Benefits= $2,000
  • Insurance= $1,000
  • Payroll taxes= $2,000
  • Supplies and other expenses= $5,000

Add all the expenses, and you will get the figure $10,000, which will be your labor burden. 

  1. Labor Rate

Once you have the base rate and labor burden, you can identify the labor rate. 

  1. For this calculation, simply add the hourly rates of the laborers working on a single construction project. 
  2. Whatever the value you get, multiply it by the labor burden and markup. 

Always round the figure for accurate estimation and easy understanding. 

  1. Construction Labor Cost 

We have 3 construction activities for which we have three workers. The project will last 6 weeks, and each team will work for 8 hours daily. Per week, it will be 40 hours of working. 

Crew’s hourly rate X 3 (amount of workers) X 6 (number of weeks) X 40 (hours per week) = Labor cost of the project.

Once you have your construction project labor cost, consider materials and other expenses to calculate and submit high-quality bids. 

Take Advantage of Construction Estimation Software!

Manually completing all these calculations can be time-consuming and may lead to human errors. Today, you have digital software and tools for estimating construction projects of all sizes. If you are not good at manual labor cost calculation, you must consider these helpful tools for getting precise and accurate data. 

Benefits of Labor Cost Estimation Software

  • Less time consumption.
  • Mobile app to monitor and manage labor.
  • Money-saving tools
  • Order tracking becomes easy 
  • Optimized productivity

Final Words

Calculating labor costs is an essential consideration in a construction project. A construction company and contractor must know how to calculate labor costs in construction. This blog post covered the three most trending methods to calculate construction labor cost and discussed a step-by-step guide to measure it. Explore this guide and become efficient in calculating construction labor costs using modern estimating software and tools. 


How much expense does labor outweigh the total project construction cost? 

Labor cost weighs around 20-40% of the total project construction cost. 

How much time does it take to estimate the labor cost digitally?

Using digital estimating software, an expert can calculate the labor cost within 1 day.

Which is the best method of labor cost calculation if we have a shortage of time?

If you need a labor cost calculation within the shortest time, you must use the square foot method for calculating labor cost. It will provide you with accurate estimates within the shortest duration.