What an hour really costs
The wage is only the starting point. In our worked example, a $48 base wage becomes $100.90 per productive hour. See what changes the rate, then calculate it from your own costs and hours.
A tradesman’s wage is easy to name. Forty-eight dollars an hour, say. The job gets charged forty-eight dollars an hour, and the rest, super, payroll tax, workers comp, the allowances, the ute, the tools, the wet days and the toolbox talks, lands somewhere else in the profit and loss where nobody connects it to a job.
Which is why a section can look fine on labour and still be losing money. The hours were right. The rate was wrong.
Three cost bases for the same hour
There are three honest ways to put a number on an hour of labour, and each answers a different question.
| Basis | What it includes | What it answers |
|---|---|---|
| Basic payroll cost | The direct wage for the hour | What the pay run owes |
| Fully loaded cost | Wage plus on-costs, allowances, vehicle, tools, training, supervision and the unproductive hours spread over the productive ones | What the hour cost the business to deliver |
| Contractor cost | Hired-in or subcontract labour at the invoiced rate, attributed the same way | What the hour cost when it wasn't your own crew |
The pay run needs the first. The job needs the second. Costing a job at the wage alone can overstate the section's margin even when the recorded hours are accurate.
The worked example
Take a tradesman on a $48.00 base. Add superannuation, payroll tax, workers compensation, the allowances in his agreement, the vehicle and the tools. Then take the hours you actually pay him for in a year and remove the ones that don't produce work: leave, public holidays, sick days, wet days, travel, inductions and the time between jobs. Spread the full annual cost over the productive hours that are left.
With the example's assumptions, the result is $100.90 per productive hour, or 2.10 times the base wage. This is an illustration, not a benchmark for your crew.
Now do it for a first-year apprentice on $18.50. He's paid 39% of the tradesman. By the time his on-costs and his unproductive hours are in, and his output is measured against a tradesman's, he costs $98.23 per tradesman-equivalent hour: 97% of the tradesman. That result depends on the assumed productive hours and output ratio. Change those inputs for the apprentice's experience, supervision and work; a lower wage alone does not establish a lower cost per unit of output.
For the example six-person crew, the model produces $87.10 per productive person-hour and $101.48 per tradesman-equivalent productive hour. These answer different questions. The second adjusts for the assumed output of each role; it is useful for comparing the cost of equivalent work.
Match the rate to the hours
Do not multiply a productive-hour or tradesman-equivalent rate by raw timesheet hours. That can count the productivity allowance twice. For the $48 tradesman, the same workbook gives $88.79 per worked hour and $100.90 per productive hour. Use the basis that matches your estimate and cost allocation.
The task example uses equivalent productive hours throughout: 320 allowed at $95 versus 344 forecast at $101.48. Its $4,509.28 difference is a modelled forecast, not an actual payroll reconciliation.
What changes when you cost at the loaded rate
- The estimate and the actual finally agree on what they're measuring. If you tender at a loaded rate and cost the job at the wage, every section looks better than it is. If you tender at the wage, every job is under-priced.
- Overtime costs what it costs. Classified separately and multiplied on the loaded rate, an overtime hour hits the budget harder, as it hits the pay run.
- Hired-in labour stops hiding. A labour-hire crew costed at its invoiced rate and attributed to the section it worked tells you the same thing your own crew does.
- The question changes. From "how many hours did we use?" to "how much does a metre of this installation cost us?" Per metre of civil, per apartment, per switchboard, per pour. That's the number that wins the next tender.
Work out your own loaded rate
The workbook behind these figures, with every formula visible. Enter your wage rates, on-costs and paid hours, and it gives you the loaded cost per productive hour for each role, the tradesman-equivalent rate for apprentices, and your crew's blended rate against your estimate.
- Visible formulas and editable assumptions
- Role by role, then the crew
- Compare the result with the rate in your last tender
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Do this week
- Build the loaded rate for your two most common roles. Check which on-costs and productive hours are included in each rate.
- Recost one job using the rate that matches your recorded hours. For raw timesheets use a worked-hour basis; reserve output-adjusted rates for equivalent productive hours. Compare section totals with your cost report.
- Ask your labour-hire supplier to show the section of works on each timesheet, and book the invoice against it.
Where Contractable fits
Contractable costs every approved hour at the loaded rate you configure, either a role rate or each person's own loaded cost, and lands it on the task it was spent on, next to what you allowed. Unpaid breaks are held back from the job automatically; overtime is classified and multiplied; hired-in crews are attributed the same way as your own. Contractable doesn't interpret awards or enterprise agreements; your payroll system keeps doing that. Crew scheduling and timesheets →
- Contractable, Fully-Loaded-Labour-Rate.xlsx: worked figures for a $48.00 tradesman ($100.90 per productive hour, 2.10× the wage), a first-year apprentice on $18.50 ($98.23 per tradesman-equivalent hour), and a six-person crew ($87.10 per productive person-hour, $101.48 per tradesman-equivalent hour, against $95.00 in the estimate; one task $30,400 allowed, $34,909.28 modelled cost using equivalent productive hours). Replace the example inputs with the rates and costs applicable to your business before using the result.
- Illustrative figures from a demonstration crew. They are not a customer’s results.
Published by Contractable, a vendor of construction cost control software. Sources and assumptions are provided for review; corrections to hello@contractable.co.
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