Ask any remodeler how much it costs for field labor and he or she will probably tell you that it’s hourly rate plus payroll taxes. More knowledgeable contractors will add workers’ comp and benefits such as health insurance and retirement; the cost of supplying the worker with transportation—mileage reimbursement if workers use their own vehicles or the actual cost of company vehicles—and communication using cell phones or smartphones.
But there’s another cost associated with employees that can severely affect profitability if it’s not figured into pricing a proposal or job costing labor. This gotcha factor is the utilization rate of your full-time production workers. In simple terms, this refers to the percentage of total paid time that is billable—and equally important, the number of hours where that person is on the clock but the hours incurred can’t be billed against a project.
Good remodelers track labor utilization rates for full-timers and some even award bonuses to employees who achieve a certain utilization rate. If you could pay the same total amount of wages and complete more work, you can improve your profitability.
Here’s an example. Assume you pay Dustin Dubree for a 40-hour work week, 52 weeks per year. That’s 2,080 hours. Dustin has earned two weeks of vacation, so subtract 80 hours from the total. Your company also pays for five holidays—another 40 hours. There's a weekly one-hour production meeting, so subtract another 52 hours. You have monthly meetings (safety, insurance options, etc.) that last about 1.5 hours each; so 18 hours over the course of the year. You also bring your crew to the Remodeling Show for two days each year; that’s 16 hours. Assuming no additional paid time off, that leaves 1,874 hours that potentially could be billed. That’s 90% of the original 2,080 hours.
Therefore, even if Dustin is extremely efficient, you can only bill 90% of his time to a job. This means the upper limit of labor utilization is 90%.And that’s a best-case scenario. Many field employees have more unbillable hours—shop time, driving time, etc. It’s key to track this non-billable time because each hour of non-billable time increases the total cost per billable hour.