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Why do construction companies charge more per hour than some people earn in a day?

I get asked this question so often that I decided to write the whole article on that subject.

So, we charge $60.00 per hour for every man on the construction site, be it a foreman, knowledgeable framer, or just a labourer. With 10% overhead, 15% profit, and 13% HST, the total comes to $85.00.

Is that labourer worth $85.00 per hour?

If you asked that question, you are thinking more like a slave driver, rather than a business owner.

Imagine that you want to start siding, soffit, and fascia business. You’re just getting started, so you need a truck, a trailer, an eavestrough machine, and a bunch of tools, totaling $100.000.00, most of it used.

In the beginning, you get a job or two per month, hardly making ends meet, borrowing funds from whoever wants to give it to you. At times, you hire part-time help, that you pay in cash. As time goes by, you get better and acquire more and more business. At about 3 year mark, you start making money and paying yourself, providing you are an excellent businessman and an even better craftsman. 

However, you are working 18 hours per day, including weekends. After 8 hours per day of hard physical labour, 2-4 hours of driving to and from work, at least 2 hours of talking, visiting, and making phone calls to prospective clients, an hour of maintaining equipment, an hour of paperwork, etc., etc. Out of all those, only 8 hours are chargeable if you are lucky. 

Do we still think we are paying too much?

Let’s take it a little further. Since you are working too hard and can not keep up, you decide to hire a couple of guys. 

You have to hire them as full-time workers with a base pay of $25.00 per hour.  Of course, they want to be paid for those 2 hours spent driving in a truck with you. 

Already, to pay them, you’re having to charge customers a little more than their salary, about 14% more. 

In the meantime, you need another truck and a bunch of tools, so you buy them on credit.

Your guys take the old truck to go to work, and you get the new one. Of course, you have to pay for their insurance, gas, maintenance, and expenses. 

And there’s still more to consider. Since your guys are full-time employees, you need to have workman’s compensation insurance, in case they get injured on the job. It comes to 12% on their gross pay. You have to pay the employer’s contributions to social security, unemployment, and pension plan. Some of them, especially if they have children, ask for private health insurance. 

In October of 2018, Carpenter construction union wage rates, including selected pay supplements, ranged from $45.07 in Halifax, Nova Scotia to $59.43 in Toronto, Ontario.

It doesn’t stop there, though. You have to pay for a 1/2 sick day and one paid holiday per month to each worker. You have to pay a phone bill. You have to buy more and more tools. If you want to have a web site, you have to pay for that. You need a computer to track your inventory, do billing, and communicate with parts suppliers, so you get it. The software is another expense. You have business fees to pay, such as licensing. You have to pay taxes and do payroll, so you will spend a lot of money getting an accountant’s help.

You’re not directly selling any of these things, but they have to be paid for, so you have to factor them into the hourly wage you charge.

Do we still think we are paying too much?

A general rule of thumb used in human resources is that hiring someone actually costs about three times their take-home pay. 

… and that’s the answer to your question. The reason why construction companies charge more per hour than most people make in a day is that there are a lot of other costs that go into the running of a viable construction business. 

More discussion: Home Price Versus Lifetime Cost

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