Chapter # 5 – Labor Rates

Union Labor Rates

In 2018, according to the US Government Bureau of Labor Statistics 10-1/2% of the wage and salary workers were union members. Non-union workers weekly paycheck is 82% of that of a union worker. Of course this varies by region and worker classification, as the largest union membership belongs in the educational (Teachers) and Protection Services (Police, Fire) sector. Most of the union works are in the public sector (33.9%) as opposed to the private sector (6.4%). Here is a sample of union labor rates for Sheet Metal Local Union 104 for San Francisco and surrounding areas in Northern California. Sheet Metal Local Union 104.

They can be a little confusing to read as each union includes or excludes different cost from their wage calculation and they use different acronyms. Below is an older version of the wage rate breakdown for an apprentice local 105 sheet metal worker. The apprentices hourly base rate is based on a percentage of the Journeymen’s wages. All wages are calculated as a percentage of the Journeymen as reflected in the first row which shows a percentage. As an example a 10th period apprentice earns 80% of what a Journeymen earns based on this wage sheet.

Included in the apprentices wages is the following;

• Base wage (Hourly Taxable Wage). Here it indicates that they received a raise or increase over the previous period.
• Savings Plan 10% (Its indicated that the savings plan is taxable)
• 401(a) Plan (This is a mandatory participatory plan as opposed to a 401(k) which is voluntary.
• Health Plan
• Local Pension
• Local Training J.A.T.C.. (This compensates the union for the expense of training)
• National Training
• National Pension
• NEMI
• SMOHIT – Sheet Metal Occupational Health Trust
• LMCT – Labor Management Cooperation Trust

Labor Rates and Crew Size

With the MEP Academy Estimating Spreadsheet there are convenient labor tables for entering labor rates for various classes of workers whether union or non-union. Below is a screen shot from the spreadsheet where you choose how many workers you want at each skill level from a classified worker all the way to general foreman. Item # 1 are the different levels of workers and their pay rates for straight time, time and a half and double-time. By selecting how many of each worker type you need, the spreadsheet will calculate the crew rate shown as $48.00/Hour and indicated as item #2 below.

The layout of the labor table is similar to how sheet metal unions classify their workers, but any non-union company can set up the labor table according to their own levels of skilled workers.

The same applies for the Fabrication Shop if your company has one. Having these labor rate tables as part of your estimating spreadsheet provides for fast calculation of crew rates. It also provides a convenient location to keep the labor rate information used for a particular project.

Labor Agreements

Depending on the type of project you are bidding on, there may be requirements to comply with various labor agreements such as a PLA (Project Labor Agreement) or Davis Bacon.

Project Labor Agreement (PLA) 

Here is the definition of a Project Labor Agreement according to Wikipedia:

A Project Labor Agreement (PLA), also known as a Community Workforce Agreement, is a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project. Before any workers are hired on the project, construction unions have bargaining rights to determine the wage rates and benefits of all employees working on the particular project and to agree to the provisions of the agreement. The terms of the agreement apply to all contractors and subcontractors who successfully bid on the project, and supersedes any existing collective bargaining agreements.

PLAs are used on both public and private projects, and their specific provisions may be tailored by the signatory parties to meet the needs of a particular project. The agreement may include provisions to prevent any strikes, lockouts, or other work stoppages for the length of the project. PLAs typically require that employees hired for the project are referred through union hiring halls, that nonunion workers pay union dues for the length of the project, and that the contractor follow union rules on pensions, work conditions and dispute resolution.

PLA’s can require non-union employees to pay union dues and follow union rules for the duration of the project. Be careful if the project you are bidding requires a PLA as this will increase the cost of your labor, especially if you are a non-union contractor with much lower rates than a typical union contractor.

Davis-Bacon Prevailing Wage Rates 

The Davis-Bacon Act, as amended, requires that each contract over $2,000 to which the United States or the District of Columbia is a party for the construction, alteration, or repair of public buildings or public works shall contain a clause setting forth the minimum wages to be paid to various classes of laborers and mechanics employed under the contract. Under the provisions of the Act, contractors or their subcontractors are to pay workers employed directly upon the site of the work no less than the locally prevailing wages and fringe benefits paid on projects of a similar character. The Davis-Bacon Act directs the Secretary of Labor to determine such local prevailing wage rates.

Davis-Bacon Wage Rates are established by the U.S. Department of Labor. The Davis-Bacon act was originally enacted in 1931 during the great depression. The purpose of the act was to establish fair wages on Federal construction projects. For any project where the Davis-Bacon act is applicable, the local wages will be published for the various classes of workers. The Davis-Bacon act applies to all subcontractors that your company hires.

Non-Union Labor Rates 

Non-Union Labor Rates are established by local conditions and the company hiring. The rates will vary by location depending on the availability of labor and the economic construction conditions. If you have a project that is bidding out of the area you normally build in, then you might have to pay subsistence for the travel and housing of any employee that you will use on that project. Labor rates will be different in Los Angeles, California compared to Derby, Kansas.

Fringe Benefits

Fringe Benefits are cost added to the base taxable wage rate and are usually found in Union contracts. These benefits might include retirement plans, health plans, local pensions, local training and national training funds. The Fringe benefits can add anywhere from 30% to 70% more of the base taxable wages. If you had a base taxable wage of $20.00, this could mean a total hourly wage packaged rate of anywhere from $26.00 to $34.00. The Unions publish their wage rates for their Union members, which includes a breakdown for the various classifications of workers from apprentice to general foremen.

Federal, State and Local Legal Requirements

There are mandatory legal requirements to make payments to various governmental agencies on behalf of the employees taxable hourly wage rate, in addition to the employer’s obligation for additional payments.

Federal Insurance Contributions Act (FICA)

The Federal Insurance Contributions Act (FICA) is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.

Social Security tax amounts to 6,2% of wages up to a maximum $137,700, any wages above that amount aren’t subject to FICA taxes. The Federal government double dips on the Social Security tax by having the employee and employer both pay 6.2% of the employees’ wages, for a total tax of 12.4%. The employee pays 6.2% of their wage while the employer pays another 6.2% from their own funds. This may show as OASDI on your paycheck, which stands for “Old Age, Survivors and Disability Insurance”.

Medicare: Then the Federal Government deducts 1.45% from the employee’s paycheck and another 1.45% paid by the employer for a total of 2.9% for Medicare. The employee pays 1.45% from their paycheck and the employer 1.45% from their own funds. The Medicare portion has no maximum cap on the amount of income the employee makes that’s taxed.

This brings the total tax to the employee at 7.65%, made up of 6.2% for Social Security and 1.45% for Medicare. The percentage of the FICA taxes has stayed steady for a long time, it’s the Income limit that gets raised more often.

If you make more than $200,000 in 2020, then there is another 0.9% added to the Medicare portion for single filers.

Federal and State Unemployment Taxes

The Federal Unemployment Tax rate (FUTA) is currently 6% minus a 5.4% credit if you paid state unemployment taxes for a net tax of 0.6% of the first $7,000 of employee wages. The calculation equals a total tax of $42 for the year, figured as such; $7,000 x 0.6% = $42

The State Unemployment Insurance (SUI) tax rate varies by state and by the employer’s history of the number of employees laid off the previous year and the amount they pay their employees.

Workers Compensation

Workers Compensation payments vary by state, trade and by contractor’s accident rate. The lower your accident rate the better your workers compensation rate. This is why is imperative to have a safety program in order to educate your employees to work safe and to secure a lower workers compensation rate. There are some projects that will ask for your incident rate, and disqualify your company if your safety record is above a certain number.

These additional taxes are calculated against the employee’s taxable base rate, not including the fringe benefits.

Construction Laborers

Calculating Labor rates

Figuring out your labor rates should start with the going rate for the type of labor you need. If its a sheet metal worker with Journeymen experience then in your geographical area there will be an expected wage range.. If you are a Union company then you will abide by your local sheet metal unions negotiated rates per the bargaining agreement and that are published on a regular schedule. If you aren’t held to a bargaining agreement, but are left to set your own labor rates, then there are a few ways to go about figuring what to charge per hour for various skill levels and department functions.

Determining how much to charge per hour for various levels of skilled and unskilled workers can make the difference between losing a bid because your labor rates are too high and winning the bid but finding out that your labor rates don’t cover all your cost. First you need to develop a base rate like that shown in the union labor rate breakdown table above.

Foreman and Journeymen Vehicles

There are several methods that contractors use to cover the cost of your foremen and journeymen vehicles. You can add them to labor burden on top of the hourly rate or charge them to each job based on project duration. At some point accounting has to determine the method of cost recovery, so we just include it here so that you give it some thought.

Overtime and Shift Labor Rates

When required to work overtime or swing shift, certain values in your straight time labor rate will need to be adjusted to account for this additional requirement. The Fair Labor Standards Act (FLSA) is a Federal Law which establishes minimum wage, overtime pay, and which requires that you pay non-exempt employees 1-1/2 times their regular pay rate for all hours worked in excess of 40 for any work week. FLSA requires that you pay 1.5 times the regular rate of pay for all hours worked in excess of 8 per day and 40 per week for non-exempt employees.

The federal overtime provisions are contained in the Fair Labor Standards Act (FLSA). Unless exempt, employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. There is no limit in the Act on the number of hours employees aged 16 and older may work in any workweek. The Act does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, unless overtime is worked on such days.

The FLSA applies to employment within any state of the United States, the District of Columbia or any territory or possession of the United States. An employee working in a foreign country is not protected by the FLSA even though the employer has its main office in the United States.

For some unions there is an extra premium for working shift hours, so if you work for a union company check the union agreement for overtime and shift hour payment requirements.

Union Concessions

Some of the sheet metal unions provide assistance for their union members when competing against non-union contractors on a competitive bid. These funds go by various names such as Market Recovery Funds, or Equality Funds. These funds help with the labor rate differences between union and non-union contractors in an attempt to level the playing field in the labor cost category. The Union may give a $20 dollar per hour reduction for their journeymen and $10 dollar reduction for their apprentices. The rates and concession amounts vary, and are only good for as long as the money in the fund is available.

Get the MEP Academy Estimating Spreadsheet here >>> MEP Academy Estimating Spreadsheet

Understanding the MEP Estimating Spreadsheet (Free Course)

• Chapter #1 – HVAC Equipment
• Chapter #2 – HVAC Quotations
• Chapter #3 – Subcontractors
• Chapter #4 – Sheet Metal Material and Labor Summary
• Chapter #5 – Labor Rates
• Chapter #6 – Rentals
• Chapter #7 – General Conditions
• Chapter #8 – Finalizing the Estimating Spreadsheet

Chapter #7 – General Conditions (MEP Estimating Spreadsheet)

We consider other cost to include general and special condition items, and indirect expenses, those items which are indirectly related to the construction of the project, but which are still required. We will cover the most common of these and how to figure them.

We like to have a separate form with many of the general and special conditions normally found on HVAC projects shown with their cost per unit already on the estimating sheet for quick reference. This will help you remember the most common items and the value that you use for them in each estimate.

General Conditions  – Management

Below is the top portion of the General Conditions tab of the MEP Academy estimating spreadsheet. Your company may use something different but the ideas and concepts of these cost are similar. It doesn’t matter where you locate these cost in your spreadsheet, so long as you have covered their cost if required.

We will cover the most commonly used general conditions for a new construction project.

Project Managers

The project manager will oversee all aspects of the project including the project schedule and depending on the company; the project manager could be responsible for estimating, purchasing equipment and materials, and total oversight of the construction.

Project managers can manage many small projects or one large project. The cost of a project manager can be charged to each job for the time spent on that project. You can determine how much project management time you believe the project your bidding will need. Knowing what a project managers cost is allows you to prorate the expense for the duration of the project. You could also charge for the project manager as a percentage of the total cost of the project, such as 5%.

Project Engineers

Project engineers provide useful assistance to the project manager by doing some of the more mundane task of running a project, like preparing submittals, O&M manuals, chasing down drawing revisions and assisting in the overall running of the project. Project engineers are usually overseen by an experienced senior project manager and are more common on larger projects that require additional support for efficient execution of the project requirements.

Superintendent

The superintendent provides oversight of the labor force and coordinates with the project manager and subcontractors on labor aspects. A in company signatory to a union this would be the role of a union worker. For smaller companies this role might be carried out by the project manager.

Safety Managers

Depending on the size of the project and the requirements you could be required to provide a safety manager. The safety manager would be responsible for making sure that the workers follow the project safety requirements, such as wearing hardhats and googles, the proper use of equipment and tools, along with conducting safety tailgate meetings. The safety manager will be responsible for providing training of the field personnel, filing reports and recording any violations of the safety requirements.

Project Estimators

Depending on how your company is setup, the responsibility for pricing change-orders could be allocated to the project manager and his/her team or sent to the estimator located in the offsite company offices. Projects with a lot of change-orders should have the assistance of the estimating department so as not to stifle the project team. The estimating department is better setup to handle change-orders using their estimating software program.

Project/Administrative Assistants

Depending on the size of the project, additional jobsite office personnel maybe required to process all the correspondences and demands of a construction site that isn’t already covered by the project manager or project engineer.

Construction Office – Non-Reoccurring Cost

Non-reoccurring cost are those that will impact the project as a one-time cost as opposed to a monthly expense

Job Office Mobilization and Demobilization

This is the cost to have the office trailer brought in and setup, then torn down at the end of the project. This cost is independent of the monthly rental fee for the office trailer. Mobilization and demobilization also includes the cost of moving tools and equipment to the site for the execution of the scope of work, and then for the pickup of that equipment and tools at the end of the project.

Construction Office – Reoccurring Cost

Reoccurring cost are those that will impact the project on a monthly or regular basis, as opposed to a one time expense.

Job Office Rentals

Jobsite trailers or offices will be required on larger new construction projects as there is nowhere on site for you to conduct the administrative functions of the project. You will need an area to review drawings, and office space for your jobsite personnel.

Job Office Utilities

This is the cost incurred for the use of electrical power, water and gas. Often the general contractor will provide this at no charge, but it’s important to confirm who is paying for these cost.

Job Site Office Telephone/FAX

It’s possible that the project will require a landline and not just the cell phone of the jobsite personnel. You need to figure how long the project is going to last and the monthly cost for the service and usage fees if required.

Job Site Office Supplies

This might include paper for the copier, FAX machine or plotter, along with coffee, cups, sugar, creamer, water and miscellaneous supplies. Plug some value for the duration of the project based on your companies past experience for these type of office consumables.

Parking

Is there adequate onsite parking, or will you be required to rent offsite parking,? Will you be responsible for paying for onsite parking fees? Some of the Universities require the contractors to buy parking permits for the duration of any parking required by their vehicles.

It’s important to know if parking fees will be required to be paid by your company for any vehicles parked at the project site during the renovation or new construction. Area’s around large metropolitan cities, and at some of the Universities during school sessions are crowded and parking is limited. In certain cases you may be required to pay for your own parking.

Additionally, you may be required to bus workers in to the site if parking is provided remotely. Depending on your labor agreement, you may be responsible for getting field labor back to their cars by the end of the day, instead of at the gate or on the site of the project. This would require that you figure losing part of the work day to transporting your field labor.

Temporary Heating or Cooling

This requirement can often be found in the general requirements of the specifications. Add the cost to provide portable heaters or coolers as required. If the temporary system is large, then you will need to contact one of the equipment rental companies that specialize in providing and hooking up temporary systems.

Storage

You need to determine if there is an area on the project site that is allocated for your company to store materials as they are being staged for installation. Unless the project is being run under some form of Lean Construction where just in-time deliveries are being made on  the day the material will be used then some location on site will be required to store and stage material from. If there isn’t any space within the building to store building materials, then you’ll need to rent a lockable storage bin in order to store tools and materials.

Subsistence and Travel

Jobs that require your workers to work beyond certain boundaries as established by the unions, or for which the project is located out of town, and for those you will be sending will require subsistence.

Subsistence helps to compensate the employee for additional expenses incurred while away from home performing his/her duty as an employee. Depending on the location this could include a cost of living increase, as some cities and areas are more expensive than others. The employee may need to stay in a hotel or rent a temporary apartment for the duration of the project as it the distance would make it impossible to drive to the site and back daily. The renting of a vehicle may be required along with round trip airfare.

If you work for a union company then check the union agreement as to the daily subsistence rate for any employee that is required to travel beyond the allotted free zone. If the union employee uses their own vehicle make sure to check the union agreement for any required reimbursement of mileage driven to and from the project site. Most times the union employee is required to get to the project site at their own cost, unless it exceeds a certain distance from the designated union zone map epic center.

Other Cost

As-built Drawings

The requirement to provide as-built drawings or record drawings of the actual installation, should be stated in the specifications. This is almost certain to be a requirement on most projects, and even if it wasn’t a requirement, it is good business practice to provide the owner with a record of the actual installation. This could be as simple as marking with a red pencil or pen the actual routing of ducts and pipes including any size changes.

Liquidated Damages

You won’t put any cost for this in your estimate as the intent is to complete the project as defined in the specifications to avoid incurring a liquidated damages penalty. This might be found in the section entitled progress schedule, where it states that if the project goes past its scheduled completion date, there will be damages assessed. This is a penalty for delaying the completion  of the project, and is usually stated in so many dollars per day for every day that you pass the scheduled completion date.

Get a copy of the MEP Academy Estimating Spreadsheet here >> MEP Academy Estimating Spreadsheet

Understanding the MEP Estimating Spreadsheet (Free Course)

• Chapter #1 – HVAC Equipment
• Chapter #2 – HVAC Quotations
• Chapter #3 – Subcontractors
• Chapter #4 – Sheet Metal Material and Labor Summary
• Chapter #5 – Labor Rates
• Chapter #6 – Rentals
• Chapter #7 – General Conditions
• Chapter #8 – Finalizing the Estimating Spreadsheet