Labor 57negotiated, when the present contract expires, and what
the results and attitudes during past negotiations have
been. If the project will run through the expiration date of
the union contract, the estimator will have to include
enough in the prices to cover all work done after the expi-
ration of the union contract. Often this takes a bit of
research into price trends throughout the country; at best
it is risky, and many contractors refuse to bid just before
the expiration of union contracts unless the terms of the
project’s contract provide for the adjustment of the con-
tract amount for such increases.
7–3 Open Shop
The construction unions have experienced a decline in
membership over the years. The open shop contractor or
subcontractor does not have to deal with restrictive union
work rules, which gives the contractor greater flexibility and
allows craft persons with multiple skills to stay on the pro-
ject longer and perform a greater portion of the work. The
downside of this arrangement is that the quality of the craft
persons is not known when hired. The union carpenter has
gone through a structured apprentice program to become a
union carpenter. On the other hand, open shop contractors
cannot go to the union hall looking for craft persons.
Rather, they must directly hire all their craft personnel,
which adds to higher turnover and training costs if craft
labor is in short supply.
7–4 Labor Burden
The wages paid to labor are known as the bare hourly wage
rate or bare wage rate (in the case of salaried employees). In
addition to the bare hourly wage rate, the contractor incurs a
number of costs associated with employing the labor that
needs to be included the labor rate. These costs are known as
labor burden. The bare hourly wage rate plus the labor bur-
den is known as the burdened hourly labor rate. The bur-
dened labor rate is calculated by totaling all of the costs of
the employee over the course of the year or the project and
dividing these costs by the number of hours that are billable
to the project during the year or the duration of the project.
The following costs should be included when calculating the
burdened labor rate.
Cash Equivalents and Allowances. Cash allowances
are funds paid to the employee for the employee to pro-
vide his own tools or for the use of his personal vehicle.
Cash allowances are not reimbursements to the employee
for actual expenses, but an allowance given to the
employee to defer the cost of providing his own tools and
vehicle. In contrast, reimbursements are based on the
actual cost of the tools or the actual mileage the employee
uses his vehicle for business. Cash allowances are treated as
taxable income to the employee, whereas reimbursed
expenses are not.
Cash equivalents are funds paid to the employee in lieu
of providing other benefits, such as insurance and vacation.
When the employer is required to pay Davis-Bacon wages,
the employer has the choice to provide benefits equal to the
required amount, pay the cash equivalent of those benefits,
or a combination of the two. Cash equivalents are treated as
taxable income to the employee.Payroll Taxes. Employers and employees are required
to pay social security and Medicare taxes by the Federal
Insurance Contribution Act (FICA). In 2009, both the
employer and the employee were required to pay 6.2 per-
cent social security tax on the first $106,800 of taxable
wages for the employee. The 6.2 percent rate has been the
same for many years; however, each year the amount of
wages subject to the social security tax increases. The
amount of wages subject to social security tax for the year
is published in Circular E: Employer’s Tax Guide(IRS
Publication 15). Both the employer and the employee are
required to pay 1.45 percent Medicare tax on all of the
employee’s taxable wages. Some benefits, such as health
insurance costs paid by the employee, may be deducted
from the employee’s gross wages when determining the
employee’s taxable wages. Estimators should check with
their accountant to see which benefits can be deducted
from the employee’s wages before calculating the
employee’s taxable wages and the social security and
Medicare taxes. The social security and Medicare taxes
paid by the employer represent a cost to the employer and
should be included in the labor burden. The social secu-
rity and Medicare taxes paid by the employee are
deducted from her wages and are not a cost to the
employer.Unemployment Insurance. The Federal Unemployment
Tax Act (FUTA) and State Unemployment Tax Act (SUTA)
require employers to provide unemployment insurance for
their employees. This is done by paying a FUTA tax and,
where state programs exist, a SUTA tax. The FUTA and
SUTA tax is paid entirely by the employer and is a labor bur-
den cost.
In 2009, the FUTA tax rate was 6.2 percent on the first
$7,000 of each employee’s wages. Companies that pay into
state unemployment insurance programs may reduce their
FUTA tax liability by the amount they pay into a state pro-
gram provided they pay their SUTA tax on time. The maxi-
mum they may reduce their FUTA liability by is 5.4 percent
on the first $7,000 of each employee’s wages, leaving them
paying 0.8 percent on the first $7,000 of wages when they
take the maximum credit.
The SUTA tax rate paid by an employer is based in part
on the company’s unemployment claims history. Companies
that frequently lay off employees, which leads to more
unemployment claims, pay higher SUTA rates than do com-
panies that have a stable workforce and low claims. The
maximum and minimum rates and the amount of wages the