How much do I charge out for my tradies and employees?
Before allocating your employees to potential jobs, you must clearly identify the hourly cost incurred as a result of sending them out as a means to establish your charge out rate for customers. Proper calculation of your charge out rate will ensure you can forecast the profitability of prospective jobs, and make confident decisions related to the undertaking of a job based on a solid understanding of your cost structure.
To calculate the cost incurred associated with labour, one could assume you merely multiply the wage rate of an employee by the number of hours the employee works. However, the results of this calculation would be misleading, and, if used in decision making regarding the undertaking of prospective jobs, employers would be misinformed.
Indeed, your analysis must extend beyond wage rates and encompass all allowances employees will be entitled to upon commencement of the job. In addition, statutory obligations, such as compulsory superannuation contributions and workers’ compensation rates, must also be accounted for in the ascertainment of your employees charge out rates.
For example, a first year full time apprentice subject to the Building and Construction General – Side Award (MA000020) would be entitled to an hourly wage of $12.49. At a minimum, per the above award, such an employee is also entitled to a tool allowance, a special allowance, and an industry allowance. The three of these allowances together total $1.41, which is additional to the hourly wage rate. Depending on the nature of the job, industry award and the individual employee, entitlements to various allowances and awards will change.
Further, superannuation contributions will always need to be paid on allowances, provided the allowance is not a reimbursement of an expense. This superannuation contribution would be based not on the hourly wage rate, but rather the wage rate of $12.49 and the allowances totaling $1.41. Thus, we add the employer’s compulsory superannuation contribution of 9.5%, or $1.32 an hour, and the cost of workers’ compensation, say a minimum of 5%, adding another $0.76 per hour. Consequently, the employer’s cost incurred when sending out the above worker is not merely $12.49 an hour, but rather $15.98 once the above variables (allowances, superannuation contributions and workers’ compensation) are factored in. The difference above, $3.49 per hour or a 28% increase from worker’s hourly wage, significant as it is, does not include the attribution of the firm’s overheads to its employees.
Overheads, such as selling and administration expenses, rent and other costs of running the business, would further increase the costs attached to an employee beyond their hourly wage rate. Therefore, this would also need to be accounted for in the calculation of each employee’s charge out rate to ensure the calculation of this rate is reflective of your costs and make certain that you’re generating a profit or at least breaking even.
Luckily, the complexities associated with overheads, in addition to everything covered above, is taken care for you by our buildersbooks simple spreadsheet which can be tailored to your individual business. By plugging in your relevant wage rates, allowances and overhead costs associated with your business, you can easily calculate the minimum charge out rate required to ensure you are not making a loss and therefore make sound decisions related to your business.
Contact us on 02 9411 5070 or email email@example.com to make an appointment and we'll help you work out your actual charge-out rates.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.