SMART Estimator

How to Calculate Overheads for Raw Labour Costs

  1. Overheads & SMART Estimator

    To ensure accurate project costing and competitive quotes, it's essential to include overheads when calculating labour costs. This article explains the two key types of overheads you need to apply to raw labour costs: Wage On-Costs and Labour Overheads. We’ll also cover the concept of Output Pay and provide Calculators to simplify these calculations.

    By the end, you’ll know how to factor these overheads into your costs and set up SMART Estimator effectively.

  2. What Are Wage On-Costs?

    Wage On-Costs are the additional costs you incur as an employer, over and above paying your employees' wages.

    These include:

    • National Insurance Contributions (NICs)
    • Pension Contributions
    • Holiday Pay
    • Sick Pay

    Formula to Calculate Wage On-Cost Percentage

    Wage On-Cost Percentage = Total Wage On-CostsTotal Gross Wages x 100

    For Example:

    • NICs: £2,000
    • Pension Contributions: £1,500
    • Holiday & Sick Pay: £500
    • Total Wage On-Costs: £4,000
    • Total Gross Wages: £40,000
    Wage On-Cost Percentage = £4,000£40,000 x 100 = 10%

    This means you need to add 10% to your raw labour costs to cover Wage On-Costs.

    Wage On-Cost Percentage Calculator

    The Wage On-Cost percentage uplifts the raw labour cost to erect and dismantle the scaffold, to cover the costs associated with paying the scaffolders. You need to know how much you spent over a set period on National insurance, Tax, admin costs (like payroll software and admin staff wages), and how much you spent on labour in wages in the same time period.

  3. What Are Labour Overheads?

    Labour overheads include additional costs associated with employing your workforce.

    These typically cover:

    • Recruitment Costs: Advertising, agency fees, and onboarding.
    • Training and Certifications: Ensuring compliance with safety and competency requirements.
    • Administrative Costs: Payroll software, HR services, and management time.

    Formula to Calculate Labour Overhead Percentage

    Labour Overhead Percentage = Total Labour Overhead CostsTotal Gross Wages x 100

    These typically cover:

    • Recruitment: £2,000
    • Training: £1,000
    • Administrative Costs: £2,000
    • Total Labour Overheads: £5,000
    • Total Gross Wages: £40,000
    Labour Overhead Percentage = £5,000£40,000 x 100 = 12.5%

    This means you need to add 12.5% to your raw labour costs to account for labour overheads.

    Labour Overhead Percentage Calculator

    The Labour overhead percentage uplifts the raw labour cost of the scaffolders, to cover the business costs associated with providing the labour. You need to know how much you spent over a set period on indirect labour costs and how much you spent on labour in wages in the same time period.

  4. What is Output Pay?

    Output Pay refers to a system where workers are paid based on the amount of work completed rather than the hours worked. In scaffolding, this could mean paying teams based on the number of linear metres, square metres, or lifts they erect.

    Benefits of Output Pay

    • Encourages productivity and efficiency.
    • Aligns costs with project outputs rather than fixed hourly rates.

    Example of Calculating Output Pay

    • Calculate Hourly Wages: £2,000
      • Total hourly rate for a gang of 3: £65/hour.
    • Estimate Productivity: £1,000
      • The gang completes 30 linear metres in 5 hours.
    • Output Pay Rate: £2,000
      • Labour cost per metre: 65 × 530 = £10.83 per linear metre.

    Output pay can then be adjusted for overheads, ensuring it reflects the true cost of delivering the work.

  5. Applying Overheads to Labour Costs

    After calculating Wage On-Costs and labour overheads, apply these percentages to your raw labour costs:

    Total Labour Cost = Raw Labour Cost ×

    1 + Wage On-Cost Percentage + Labour Overhead Percentage

    Example:

    • Raw labour Cost: £1,600
    • Wage On-Cost Percentage: 10%
    • Labour Overhead Percentage: 12.5%
    Total Labour Cost = £1,600 ×

    1 + 0.10 + 0.125

     = £1,600 × 1.225 = £1,960

    These adjusted labour costs should be input into SMART Estimator for accurate project quoting.

    Configuring SMART Estimator

    • Input Raw Labour Costs:
      • Use the calculated costs per hour, per metre, or per lift.
    • Add Overhead Percentages:
      • Configure the Business Rates section with your Wage On-Cost and labour overhead percentages.
    • Adjust for Output Pay (Optional):
      • If using output pay, ensure your rates reflect the productivity-based calculations.

  6. Conclusion

    Including Wage On-Costs and Labour Overheads ensures your labour costs accurately reflect the real cost of employing workers. By understanding these overheads and how to apply them, you can configure SMART Estimator to generate precise and competitive quotes for your scaffolding projects.

    Use the calculators above to streamline your overhead calculations and set up SMART Estimator effectively!

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