How do construction companies manage labor burden?

For construction companies, Job Costing is how you measure the true, overall cost of active projects to determine profitability and to make informed decisions when bidding on new contracts.  The job cost consists of all costs to the job including labor, equipment, and overhead.

Job Costing is typically managed in your Enterprise Resource Planning (ERP) system (e.g. Sage 300 CRE and Acumatica Construction Edition).  The ERP is the system of record that most construction companies use to manage job costing and overall company financials (general ledger, invoicing, accounts payable, etc.).  Most ERP systems also include a payroll module, however it puts the responsibility on you to manage all aspects of payroll compliance (taxes, withholdings, etc.).  

With many contractors looking to outsource payroll and other human capital management functions (e.g. Time and Attendance and HR), you need the ability to have all of the labor and benefit costs associated with a given job uploaded to the ERP to see the impact of the last pay period on job costing.  

One of the critical components of calculating comprehensive job costing for a project is to know each employee's labor burden.  The labor burden consists of all direct and indirect labor costs.  The full burden cost includes the employee wages and any benefits you pay to, or on behalf of, the employee.  It is critical to have a good assessment of the entire labor burden to ensure profitability on your projects.  

While outsourced payroll systems have many of the components of the labor burden cost, they do not have many of the benefit costs needed to complete the full burden costs.  These benefits are managed in your various outside benefit systems, such as your medical system (e.g. Blue Cross), dental (e.g. Delta Dental), and 401K (e.g. Fidelity).

To determine the benefit portion of the labor burden companies typically determine a fixed percentage (e.g. 25% of wages) or calculate a per employee hourly benefit rate to be applied to the job when the employee works on a particular job.

Because of these complexities, many construction companies with multiple systems are relying on time-consuming, manual efforts to get all of the detail you need back into your ERP.  This has caused many construction companies to avoid outsourcing HCM and to continue to process payroll and other HR functions in-house with your ERP.


How can IDI help?

IDI can eliminate your time-consuming processes and allow you to outsource the payroll risk to an HCM vendor!  

Our Time Bank™ Job Cost Link solution allows us to extract post-payroll information from an outsourced payroll vendor and provide the necessary detail for job costing and GL entries to be imported into the ERP.  Time Bank manages the critical role of assigning the benefit burden as part of the overall labor burden to provide the complete detail needed for job costing.

Since payroll systems do not maintain or have access to the true benefit costs, Time Bank can be configured to derive the job level benefit burden using one of two methods, based on your preference.  

1) A fixed percentage to apply to wages to a job (e.g. if fixed benefit burden is set at 25% and there were $10,000 in wages to a given job in the weekly pay period, the benefit burden job cost amount of $2,500 is applied for that period to the specific job). 

2) Employee specific hourly benefit rates stored in a Time Bank table that you can manage and update as needed.  You maintain a roster of your employees' hourly equivalent benefit rate (e.g. Employee A's hourly equivalent benefit rate is $5.43/hr and Employee B's is $4.22/hr).  That information is used to calculate each employee’s hours worked to the job at the hourly rate and then summarized to the Job.  (E.g. if Employee A charged 20 hours to Job A, the benefit burden for her to Job A would be $108.60.  If Employee B charged 10 hours to Job A, his benefit burden to the job would be $42.20.)  Time Bank would then calculate all hours all employees worked on the job and multiply times the employee’s benefit rate to then summarize and pass to the ERP as that pay period’s benefit rate.

When Time Bank is run at the end of the pay period with the click of a button, it retrieves the post payroll results exported from your payroll system, maps the journal entries to your ERP system's GL, and assigns the labor and benefit costs to the job for upload as Job Costing transactions.  

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ADDITIONAL RESOURCES:

Department of Labor

IDI Job Costing for Construction Clients Blog

IDI Construction Solutions Video 

IDI Construction Solutions Blogs