Job Cost is the sum total of several broad categories of expenses which can be directly related to each individual project.
Identifying Job Costs:
1) Labor: the contractor’s cost for compensating hourly employees which includes both the hourly wage of the particular employee and additional costs known as labor burden. Included in the labor burden are payroll tax expenses required by law to be contributed by the employer on behalf of the hourly employee, as well as any optional benefits which the employer may provide for the employee.
Required expenses typically associated with employee labor in addition to hourly rate:
FICA (Social Security Taxes)…typically 7.65 % of wages
FUTA (Federal Unemployment Taxes)…typically .008% of wages up to $7000.
SUTA (State Unemployment Taxes)…varies by state 1.5-2.3 % of wages up to $8500.
WORKER’S COMPENSATION…varies by state 5-160 % of wages
TOTAL REQUIRED LABOR BURDEN……………..14.1% to 170 % of wages
Optional benefits which the employer may provide:
Truck or mileage allowance
Contribution to pension or retirement plan
2) Materials: costs associated with any item consumed on the job, including lumber and building supplies, saw blades, heating fuel, plastic or other temporary protection, as well as any equipment rented or bought for the production of an individual project. Usually bills from suppliers include such items as sales tax and delivery charge, and include a job address where the materials were used, allowing for easy identification and compilation as a job cost. Contractors are aware that in instances where an individual may pick up materials for several jobs during one visit to a supplier, that person must have the items for each job put on separate bills with separate job addresses. This practice avoids the uncertainty of having to recall on which job the material was used at some later date.
3) Subcontractor: costs which may include both labor and materials provided by non-employees, which include the building trades, commissioned sales people, professional consultants, dumpster fees, etc. Contractors are aware that there are numerous rules which must be followed in documenting the status of an employee vs. sub-contractor, including the filing of 1099 tax forms with the IRS on an annual basis. The most common mistake contractors make using sub-contractors however, is in not documenting coverage status as related to Worker’s Compensation Insurance. The requirements vary from state but, simply stated, the contractor must have in his possession verification that the sub-contractor is covered by worker’s compensation, or verification from the appropriate agency that coverage is not required. Many contractors require their sub-contractors to itemize labor and material for each job. By itemizing the dollar amount for labor the general contractor is minimizing his exposure for back premiums he may be liable for in the event that at the time of an audit his documentation is lacking as generally Workerâ€™s Compensation is only due in labor.
4) Plans, Permits, and Fees: costs associated with the act of obtaining to a building permit. These costs would include the cost of physically delivering the building permit application and ‘walking it through’ the building, zoning, and other departments required in the approval process. Also included are the costs of drawing plans, required review and consultation with professional engineers as well as any special fees which may be levied by the city, county, or other jurisdictional body. In many areas around the country fees for water use, sewer use, storm drainage, school districts, etc. can be significant and cause wide variations in the costs of building permits. There are some states which impose a “business opportunity tax” which is periodically computed as a percentage of the contractors gross sales and must be identified as a job cost by allocating the appropriate amount to each project sold.
5) Clean-up: The costs of dumping fees, hazardous waste containment and disposal, transportation of waste, etc. are costs which can be expected to climb on a continuous basis as existing landfills are filled up. The considerable costs of opening new landfill sites in the face of todayâ€™s regulations, as well as the added cost of transportation as these new sites are located further from the metropolitan area have a definite impact.
Contractors know that in order to identify Job Costs, they must identify and calculate the costs in the above five categories and arrive at a Total Job Cost.
4) Plans, Permits & Fees
Total Job Cost
The equation we work from to determine the proper price which we will present to our prospect:
Total Job Cost+Overhead+Profit=Price