Accounting best practices are extremely useful when managing your money. Tax season can be dreaded, or it can be handled swiftly and with ease. You should be ready to effectively manage your taxes and file appropriately. Join us as we discuss basic accounting principles revolving around labor burden.
A licensed CPA, Karen has spent her career focused on helping entrepreneurs start, grow and sell their businesses since 1987. Her passion is for helping business owners develop policies, make financial decisions and increase the overall value of their company. She is the author of several books and often speaks at industry specific trade shows across the country on finance and accounting topics.
Been quite busy.
And, yeah, you know, clear Karen has helped us with our integrations, with QuickBooks and just kind of general accounting practices, for contractors in specific. She's a licensed CPA.
Her website is onlineaccounting.com.
And we'll include all of this information. After the webinar, we'll have the recording available. We'll have a blog post write up as well as all of Karen's contact information if you wanna get a hold of her. But with that, thanks everyone for joining us.
We have the chat feature on the right side. Let us know where you're coming from. And if you have any questions, feel free to ask them there as well. But with that, Karen, I'll go ahead and turn it over to you.
Thank you.
So this on screen is a group of people that I work with every day. That's our team. And you might notice the girls in the black are, the women on our team, and the missing guys are, over by the barbecue. This is our annual company family picnic.
And when the photographer showed up, the with the beer the beer and the brats showed up at the same time. So our guys were over eating beer and then I drink a beer and drink eating brats. And then the dog came into the photo and then the kids came in the photo, which was real fun. So that's our kind of family friendly group of people.
The next slideshow shows, we have two businesses, Online Accounting , where the CPAs like Alex talked about. And then we have another company that was recently started about a year ago that's taking over affordable training for contractors.
We have a video series here on the left, that is mastering QuickBooks for contractors, where we teach contractors, their bookkeepers, and their accountants how to do job costing as well as bookkeeping and accounting. And then we have a new video series coming out that's for real estate investors. And, also, our book that we've had out for ages since, I think, nineteen ninety five has now gotten a new look here, the contractor's guide to QuickBooks.
As he as Alex said, my name is Karen Mitchell.
And what I'm going to do is explain to you today how much it costs you as a contractor to employ somebody. That way when you leave, you know a couple of concepts that are extremely important and make up kind of the major component if you're, like, a framing contractor or plumbing or electrical or a general contractor that hires, employees. Not only do you have a rate per hour that you pay the employee, but you also have this word called burden. We're gonna calculate the burden on screen. I'm gonna give you a spreadsheet that we've been using since nineteen ninety three for calculating labor burden. I'm gonna break it down for you so you know how to go back and add your labor burden in there.
And then we're gonna talk about a concept that's really important, and that is throughout the country, there's two different groups or camps.
One is the keep it simple, and the other one is a fully loaded labor burden.
And they're very different from one another, but they start at the keep it simple, and that's what we're gonna teach today.
And as we're going through this and kinda defining it, what I want you to keep in mind is that the method that you use will be the method that you use when you're building in your labor costs and you're estimating.
So it's really important in construction accounting that people understand, what they're estimating is doing or what you're doing with your estimating so that your actual cost reporting, estimate to actual, is comparing apples to apples. It doesn't help us to figure out how we're doing on a job, which is job costing, if we don't have the estimating and the accounting married together or doing or acting the same way. So we're gonna explain all of those three things to you today so that you can feel comfortable when you hire somebody and you're estimating and you're looking at your job cost reports that they're all coming together properly.
So how much are my employees costing me? This concept probably comes up three or four times a week. Well, I'll get a new contractor and they'll email me and go, I just don't I don't know. I wanna hire somebody, but I don't know if I can afford it.
I don't know what to charge. Well, here we are. We're gonna dive in so you feel a little bit more comfortable before you hire somebody. What is it really costing you?
So let's say that we hire somebody and it costs us nineteen dollars an hour, and that is just for the hourly rate. So we're gonna pay somebody nineteen dollars an hour.
On top of that, at minimum, you have your employer payroll taxes. And on screen as of today, which is April sixteenth two thousand nineteen, our Social Security taxes are six point two percent.
So that means somebody who earns nineteen dollars an hour or somebody that you pay nineteen dollars an hour to, you're gonna pay an additional dollar eighteen for Social Security taxes. That's the biggest hit right there most of the time. The next thing is Medicare taxes, one point four five percent. This is a smaller one, but you need to make sure you remember that it's there.
That's only twenty eight cents if you're paying seventy nineteen dollars an hour. That gets added on. Then you'll have SUDA, and SUDA, by the way, is state unemployment and training, and that ranges based on your classification. How many people have you had on unemployment through the state.
Right now throughout the country, our state unemployment costs are very low. They're running about one percent, unless, of course, you've had a lot of people on unemployment.
So let's say that it's one point o five percent.
That cost you about twenty cents an hour.
And then we have FUTA. I know you notice that I have a seven thousand dollar number there. The FUTA caps, it's federal unemployment.
That FUTA caps at seven thousand dollars, and it's point zero zero eight or point eight percent.
That doesn't cost much. So on the employee's first seven thousand dollars, it's fifteen cents an hour.
The other burden items that you need to keep in mind are your workers' comp, and that varies. So in our example, we're gonna use, let's say, ten percent.
In the state of Washington, you have LNI, which is labor and industries.
There those rates, and it's the only state that does that, they're based on a per hour basis, and the employer pays portion of it, and the employee pays a portion of it. Throughout the country, workers' comp is done exactly the same way, which is a percentage of the employee's hourly rate except for Washington, which has that l and I.
And then there's a general liability component, and that what we're gonna be talking about today relates to general liability that focuses on payroll. You'll have general liability that'll be based on either gross or payroll and subcontractors.
Keep in mind, this is not all of general liability. It's only the labor component to that. And that's just, again, to keep it really simple.
Other things that you might wanna keep in mind when you're paying employees are your benefits.
If your company issues or has the ability for the employer, that would be you, to pay medical insurance.
This is not the employee's portion. This is employer's portion. The employer's medical insurance is included in your labor burden and how much it costs you as well as dental and vision insurance or any other company paid employee benefit.
Also, we calculate in vacation if it's offered, sick pay, and holiday pay.
Here's a spreadsheet on the screen, and it goes over, what we just talked about. Now you'll be able to download this. This is gonna be key to you being able to do what we're talking about when we're done with this. The spreadsheet is hourly labor with burden by classification. Now you might be wondering why do I have it by classification.
You should, before you start estimating jobs, have this spreadsheet filled out for each classification.
Here, you would enter in your company name, for example, quality construction, and classification in this case is Carpenter.
So we have a period here, which is all of two thousand nineteen.
We created this on January sixteenth of two thousand nineteen for a carpenter. So on average, if we have more than one carpenter working for us, you would come up with what the hourly rate is for the highest paid carpenter. I know people tend to average it out, and you're not going to do that. I don't want you to average. You're gonna pick the highest because you're when you're estimating, you're not sure when somebody works on the job whether it's gonna be the highest paid or the lowest paid, and we wanna make sure that we we don't lose money on these projects.
So we have a straight time here, an overtime, and a double time.
So if we look at the rate per hour of nineteen, here we're adding in, and this number won't change unless it hasn't changed for many years. So usually you'll leave this alone, dollar eighteen. Here's your Medicare that I was talking to you about earlier, twenty eight cents.
These are per hour. This is nineteen dollars an hour, a dollar eighteen an hour for Social Security, eight twenty eight cents for Medicare.
Federal unemployment, even though it runs out, we'd leave it on there for the whole classification for the year in case we hire somebody new.
Yours this one, you would vary. So you would have to get your state unemployment rate and fill it into this box, and it automatically calculates for you. And then if you have other state taxes, you would enter it into this spot.
And then workers' comp, this is also gonna vary depending on whether you have LNI or workers' comp, and it would be a workers' comp classification for a carpenter.
In this case, we put in ten percent, and that's honestly fairly low.
Look at this. It's really important not to forget workers' comp because look how big of a component it is. It's a dollar ninety an hour. So in this case, just at a low rate of ten percent, and, of course, it varies. It's all over the place. And your workers' comp will depend on the coverage that you have.
Or, I mean, actually, the classification as well as Hey, Karen.
Sorry to interrupt. I don't think I can hear you.
Kinda cut out there for a second.
We can still see the spreadsheet here, but, I cannot hear you.
Think Karen might be having some microphone issues here.
Give it a second. Maybe the mic died. Maybe it was unplugged.
But, Karen, if you can hear me, we're seeing that we can no longer, hear your audio. Looks like we've got a couple of our attendees that are saying that the audio isn't working as well.
Karen, if you're there, we cannot hear you.
Sorry about that, everyone. I was able to get ahold of Karen. It sounds like the mic died.
But I've informed her it was just for a minute, and we're back on the spreadsheet here. So we're getting that worked out, and then, we'll be we'll be all set to go here. So, Karen, if you can hear me, everything is still good with the presentation here. We just finished up. I think we cut out right at the end of the, labor rates plus burden spreadsheet.
And I think we're moving on to the next slide there. But, still can't hear you. We'll kinda wait a second here, see if we can get you back.
And, Karen, just a heads up, up top where you can see your admin console, the little microphone. Just remember that it's, blue when it's on. So if we're turning the microphone back on, it may need to be just, you know, defaulted back to the on position. Sometimes that happens when my my kites, excuse me, cuts out.
But thanks again, everyone, for joining us.
We're just talking about labor rates with burden today. So, hopefully, this helps you better prepare for the additional costs on top of just the hourly rate that we're gonna be charging our customers.
And in your clear estimates account, this takes place in your options in your labor rate editor.
Obviously, we already provide rates for your area that include a benefits package that's similar to what Karen is talking about. But this is gonna help you hone in on those specific costs, and a few extras that we don't include.
And, again, we're just working out an audio issue right now. We'll be back in just a moment.
And, Karen, if you can hear me, still can't hear you.
But we can see your presentation. Everything is working well there.
And then, hopefully, we can get the mic back working here shortly.
Paul, good question. Yeah. So the information that we include so the information that Clear Estimate includes when you go to your options page, you click click your labor rate editor. It's gonna be that second red arrow on the left side pointing right. When you click the link inside of there that says click here to browse our recommended labor rates, these rates again come from RemodelMax.
But they include unemployment insurance, workers' comp, Social Security, and Medicare, and a nine point seven five for for benefits such as, vacation, sick leave, and medical.
Yeah. So, again, these are the rates that ClearEstimates provides. We update these every year. So we just got some new rates, four months ago. And, again, they're courtesy of RemodelMax. You can find them by going to your options to your labor rate editor.
Good question, Mark. And I saw a couple other good questions here. Let's see here.
Brooke and Mark, couple good questions.
Those are gonna be more for Karen, so we'll definitely star those and bring those up as soon as we're back online with Karen.
Okay, everyone. I'm gonna jump back on a call with Karen and see if we can figure out the microphone issue here and expedite that process. I will be right back.
I turned up the Yeti microphone all the way up to ninety four.
Hey, Karen. Can you hear me?
Oh, can you hear me now?
Okay. Thank you.
I'm sorry. I lost you for a little bit. I had to plug in a microphone. I don't know what happened to my computer. I don't know where we left off, but I'm going to start back here at the spreadsheet and talk about the rate per hour. We've already and I'm assuming that you heard all the information about how to calculate each one of these items, and that's the labor burden.
The total labor burden, six dollars and seventy nine cents.
The total hourly labor cost is twenty five dollars and ninety or seventy nine cents with thirty five point seven four being your labor burden. And in this case, we're following what we call that keep it simple method.
Over here, there are two different methods that you should be aware of that we keep talking about. One is this: keep it simple. People like Michael Stone and others talk about across the country. Then there's another one, fully loaded labor burden. The difference between the two and the importance that you need to know about, it'll be coming up. But in the keep it simple method, all your direct costs to the labor burden so in other words, all the costs here are allocated hour and burden to a job, and you'll be estimating your rate per hour for an employee at twenty five dollars and seventy nine cents. It's fairly simple even though a lot of people say that's not that simple.
The rest is built into your overhead rate.
And then the second is the fully loaded labor burden.
In the fully loaded labor burden, in the hour per dollar per hour rate with burden would be including individual or indirect costs. Those indirect costs could be cell phones, autos, and cell phones for field employees, autos for auto costs like gas and registration, license, and repairs for, again, field employees, tools and supplies used on jobs, and other costs like warranty costs.
It's much more difficult accounting wise to keep track of all of the indirect costs and allocating them allocating it to labor. As you can imagine, it would require you to have a much more difficult and lengthy spreadsheet.
And then accounting wise, we would have to back all of that out of overhead costs, come up with a different overhead cost, and then put it into the hourly rate. So when you're first starting, the worst thing you can do is try to do fully loaded labor burden. Once you're big enough and you have a full time controller, you might want to do it. But think about it and calculate it first just to see if it would make sense to you to do it.
Now one of the most important things to keep in mind is that over time, estimating software has really changed and it's grown a tremendous amount.
ClearEstimates is probably one of the easiest estimating software to use. I really like it. Or at least my clients talk to me about how much they like it.
I was introduced to it at least ten years ago by, one of the estimating gurus, Michael Gorman, and he talks about how this is the easiest to use estimating software for contractors. And what I like is that we get to pick in the estimating software nowadays whether we're gonna do, labor plus burden or the keep it simple method or the fully loaded labor burden method.
And, that wasn't the case. When I worked with my dad's construction company when I was really young, we had one estimating number that we could use for each classification, and it included a whole bunch of additional costs, and we weren't quite sure what those included.
They gave us an idea in this estimating software, but we were stuck using that, and it took a lot of time accounting wise to get back to matching apples to apples, which is what did the estimating software have built in versus what did we have in our accounting side matching.
And the most important part to remember here is that when you're doing your accounting and keeping track of labor burden and labor, we want it to match. We want the estimate to actual job cost reporting to be in alignment. It doesn't help us to look at a estimating estimated cost for labor for framing of eighty seven thousand dollars when we come back, and we haven't tracked the same thing in our estimate that we do in our actuals. So if it comes back and says, well, we've only spent thirty thousand dollars on labor, and that actual cost only includes an hourly rate, well, we're not gonna have a good match. So you wanna spend some time, try to figure out how to get your estimating rate per hour and your actual rate per hour to pull really good job cost reports so that we can have a nice feedback loop for your estimate and your estimator.
Because if you're constantly losing on concrete because concrete's the thing that has the most labor in it or framing and, it's not materials, it's the labor, then we can pull that apart a little bit and find out that we need to increase the, concrete portion of the estimate from now on because your team, maybe isn't as good at concrete. Maybe we should sub that out. Things like that.
So here I put a, information about where you can go to get some get the Excel document that we looked at as well as this presentation.
And, Alex, can you hear me? Oh, I forgot Alex can't hear me.
Yes, Karen. Can you hear me now?
Alex?
Okay. Alex, read the question to me about general liability and workers' comp.
Let me go back there and show you on the spreadsheet.
The reason that you wouldn't want to have general liability and workers' comp actually, you could put general liability in the overhead. That's fine. But workers' comp is is based on the amount of time or the hours spent on a project or it's based on gross payroll. So we would and it's a big component. You'll notice here in if this, or this company has a workers' comp rate of ten percent, it's a dollar ninety an hour. So because workers' comp is based and this is throughout all of the states.
It's based on the gross payroll that you issue to an employee. We would wanna make sure that the workers' comp is part of the labor burden because it varies too much. What you don't want is to estimate to your workers' comp coverage that you're gonna have two hundred thousand dollars in wages paid in a certain year, but you end up with eight hundred thousand. And by mistake, you haven't included that cost in your, labor actual costs. So but the general liability, if they don't base it on payroll, if it's based on gross, then you would want to put it as part of your overhead costs.
That's a good question. So, yes, what we're talking about here is, in this case, it's for the classification for employees that work for you that are carpenters.
They're not for subcontractors.
A subcontractor gets not just nineteen dollars an hour with all the labor rate. A ten ninety nine subcontractor, let's say it's a framer that comes in, they'll charge you forty dollars an hour. And it it to be equivalent to here because they have to go back and pay all of their, their costs. They have to pay these at their company level. So this would only be for employees and not subcontractors.
So, Alex, if I heard that right, it is should a painter in house, carpenter, painter, plumber, if they're doing very it could be one person that's really handy and, are very talented and they're doing different jobs, it would they that one person might have a blended rate. For example, it might not be a carpenter. It could be have a lead carpenter that knows, and he's kind of, working with a number of the trades.
That hourly rate would be for lead carpenter, for example, and, it would be one rate. However, if you have a if you have a painter, a person who's doing painting, that's separate from carpentry, you would have more than one of these spreadsheets. One for the painter that gets maybe twenty five dollars an hour and one for the carpenter or carpentry area that classification that gets paid the highest this rate per hour. So in other words, if it's a lead, leads tend to manage a lot of people who do different tasks. It would be the leads rate per hour, or if it's a person that it just it ends up that they can do a lot of different, tasks that, you might not have as a classification. It might be by person in that case.
I'm not able to go through that here, but all of our books and our videos, they cover it. It takes a long time. Oh, actually, it doesn't take a long time to set up. It's the first step is learning how to do it. So you can buy our book, the contractor's guide to QuickBooks, which includes payroll and putting burden onto, into payroll, or the videos. Both those video series will walk you through a step at a time how to set that up in QuickBooks. And because we only have an hour, there's there's we don't have anywhere near enough time to be able to do that.
Well, we could, but I think we would bore a bunch of people. It's more of the hands on. That's the thing that a a good bookkeeper or accountant most of the time, your accountant would set that up for you in the very beginning. But we could we could look at a you know, what would be really important or what I'd like to do is the outcome. What would it look like to have an estimate to actual job cost report that would have labor and burden built into it? Because you people running companies aren't necessarily the person who are sitting down there and going through the nitty gritty of setting up QuickBooks in this example, but they would be wanting to and needing to look at the estimate to actual report with labor and burden built in.
I haven't loaded that yet. So if, I just finished everything, and, I gave it to our website guy to upload. I think it was yesterday, and it takes them usually a couple days. So you could either email me karen at onlineaccounting.com, and I can email you the contents, or you can wait a couple days and you'll be able to download it on that website.
I don't know if it is it is as much of what's accidentally calculated in. It's more of what doesn't get calculated in.
Just knowing what you should add in there for the keep it simple method, and having this spreadsheet available with some of the calculations already built in for labor burden. Some people forget that you do have FUTA. Even though it's a tiny amount, it's fifteen cents per hour. It's important to have it in there so you as an owner aren't eating that cost later.
Does that make sense?
If you're interested in any other videos, I'd welcome, for you to email me and let me know because we're doing all summer long, we're doing a bunch of free, videos for contractors to help them out with different questions. So if I get enough responses or enough questions, I'll we'll put them together, and our group here will put together some additional videos. Let's put them up on our Online Accounting Academy website, and you guys will be able to access them.
Thank you, everybody.
Hi, everyone. Alex again with Clear Estimates.
Thanks again for joining us. I know that was a bit of a bumpy ride there with the microphone troubles, but I greatly appreciate you you bearing with us while we took care of that.
You know, sometimes these microphone issues happen. You know, it's just a part of what we do. You know, to be honest, that's, you know, something that just happens. You know, we do endless amounts of testing.
The first three webinars were extremely smooth for those of you that were with us, but, unfortunately, we just had some difficulties here and had to reschedule and had had more difficulties. So, again, I really appreciate everyone joining us here. Hopefully, we were able to get most of those questions answered. If not, please email me questions that may have not been answered or lost there.
You know, I'd I'm pretty sure I got to everything.
But, again, thanks for joining us. I'm gonna get that spreadsheet from Karen. I'm gonna include it in our post webinar digest so everybody has access to it. So we'll make sure everybody gets that document. We'll have the recording available, and we'll have the blog post right up. But, again, thanks thanks everyone for joining us. I deeply apologize for the issues here.
You know, Karen did her best to join us. We definitely thank her very much for joining us, especially in time for tax season here. And then, Paul, don't forget I've got that question, for RemodelMax that I'll get to, get you these specific percentages on the burden that's included in our rates. But if anyone else has questions, I know it's been kinda chaos here. If you have questions that were not answered, definitely email them to me. My email is alex at clear estimates dot com. Happy to relay those over to Karen.
Karen is extremely nice, extremely knowledgeable, just some technical difficulties today, and, she would be more than happy to answer those questions.
But with that said, we'll go ahead and end the presentation here. Again, you can reach me at alex at clear estimates dot com. Thank you so much for joining us. We'll have the webinar blog up in a couple hours here as well as the recording on our YouTube channel.
I'll be sure to, email everyone here. And if it's easier for you to just reply to that email, with your questions, that's definitely an option as well. So you'll be hearing from me shortly. Again, I apologize for the technical difficulties, and thanks again for joining us.
Alright. Thanks, everyone. Have a good day. Bye bye.