In calculating labor costs for any trenchless project, there is one fact trumps all others: Labor costs mount hourly. Overall, the cost of labor depends on how many hours it takes to complete the project. Before you take the grand leap and say, “The labor costs for this project are X,” you must remember that you have to charge an hourly rate that includes all of the obligations related to labor, including taxes, benefits of any kind, and the elusive reason you’re in business: profit.

Taxes

The tax obligations you must consider when calculating the labor costs for a trenchless project include the taxes your company must pay – local, state and federal income tax, the amount you deduct from each employee’s paycheck and pay to the government on behalf of your workforce – as well as the cost of programs such as unemployment/workers' insurance, which is not deducted from your workers’ checks. (Personal safety can also play a role in expenses. See Trenchless Operations Safety Do’s and Don’ts.)

In the United States the question of required, employer-provided healthcare insurance is a wrench thrown into the machinery of labor cost calculation. If you provide or pay for any part of your employees’ health insurance costs, that’s another dollar amount to be added to the per-hour cost of each employee. Like it or not, tax or benefit, each of these items represents one part of the overall cost you must consider.

Benefits

Likewise, the cost of any retirement program, even if it’s a simple contribution to an employee-owned retirement program, such as an individual 401(k) or other plan, necessarily attaches itself to the hourly cost of having an employee present on the job site. Vacation pay, if you offer paid vacations to your employees, is another element that must be built into your labor calculation. For example, if the supervisor of horizontal drilling operations is paid $X a year and receives two weeks’ paid vacation, the supervisor’s salary works out to $X/52, whereas the supervisor is directly profitable for only 50 weeks per year; the extra two weeks of pay will either come out of your pocket, or your customers’. Since it’s unlikely you’ll be willing to pay for the supervisor’s vacation in Tahiti out of your own pocket, the cost of that two-week vacation must be spread out over the year’s labor costs.

If you routinely throw a birthday party for each employee once a year, the money for that birthday party has to come from somewhere. The obvious source of money to pay for these extravaganzas is client billing.

Profit

The money you put into your own pocket (or the money your corporation puts into its pocket) as it wends its way to your wallet, as a profit from the business comes from the efforts of your workforce. Consequently, it must be an add-on to the hourly wage or salary of every employee.

Labor charges are not the only source of customer charges for a trenchless operator; the bottom line is every cost of running a business is built into customer billings. Administrative costs, regulatory costs (permits, remediation, environmental compliance efforts and such) and equipment charges can be billed in their own right. Each will have a percentage of your company’s profit attached. A simple chart explains the expansion of the cost estimate of labor beyond the employee’s wage. (Another important factor to keep in mind is value of life. Learn more in Assessing the Value of Life in a Trenchless Project.)


Hourly Pay

Payroll Taxes

Job Benefits

(annualized cost of a truck, cell phone, uniforms, paid vacation)

Social Security

Pension plan

Profit (at 25% per hour)

Total

$30.00

$9.75

$5.19

$5.40

$0.375

$7.50

$58.22/hr


As the chart above shows, the hourly pay isn’t the only factor in estimating labor costs for a trenchless project. Taxes may add more or take less, as may pension plans, job benefits and your firm’s profit. There are almost certainly other costs directly attributable to and billable as labor charges.

Only you can identify the factors that will add to the cost of labor for your firm in your location. Do so carefully and charge your customers accordingly in order to maintain a healthy, successful business.