How to Calculate Labour Costs in Construction (UK Guide)

What Are Labour Costs in Construction?

Labour costs include all expenses related to workers on a project, including wages, subcontractor fees, employer contributions, and indirect time such as supervision and administration.

Labour is one of the biggest costs in any construction project—and one of the easiest to get wrong. Underestimate it, and your profits disappear. Overestimate it, and you risk losing the job altogether.

This guide walks you through exactly how to calculate labour costs in UK construction so you can price jobs accurately and protect your margins.

Why are your Labour Rates Important for calculating Project Costs?

Very broadly you will expect the costs for a construction project to break down into in the region of 30-40% labour and similar sort of percentages for the materials. If used plant (including skips, scaffold site security) can vary wildly but typically in the 5-10% range. Overheads will probably in the region of 10% but this will depend on how the business is run and of course, you will want to make a profit too. The profit should reflect the risk taken, so 20-30% is not unusual.

As you can see that Labour is a significant proportion of the true costs, before a markup percentage is added for overheads and profits, which will compound any errors made in your labour calculations. Materials costs are relatively easily to calculate, so long as you don’t forget to include any additional charges such as delivery, storage or restocking costs. Sadly, Labour costs can be full of pitfalls and using numbers from AI Chatbots can sometimes drop you right into them!

Find out how to avoid the pitfalls with calculating your labour costs here.

What Are Labour Costs in Construction?

Labour costs include everything you pay for the people working on a project—not just wages.

This includes:

• Basic pay (hourly or daily rates)
• Employer costs (NI, pensions)
• Subcontractor fees
• Overtime and bonuses
• Travel time and expenses

Also remember that you might have additional labour costs for people who facilitate the job but are not actually billed out for that work, such as office and admin staff.

Step-by-Step: How to Calculate Labour Costs

Generally, there will be two ‘kinds’ of labour rates – directly employed staff and subcontractors. Let’s start with subcontractors as they are typically easier as tend to give you their rate, so there’s not much to calculate. They turn up and do the job, and you have no responsibility for their equipment, van, insurances etc so you probably don’t have any significant additional costs here. Although don’t forget that will be a cost to organising them, scheduling them and ensuring they have materials etc.

Calculating Subcontractors Labour Costs:

Subbies typically charge:

• Day rate: £150–£300+ depending on trade, experience and level of supervision they require.
• Specialist trades: often higher

Always factor in:

• Reliability
• Speed
• Quality

Cheaper isn’t always better – someone you can trust to get the job done properly and on time certainly warrants paying a premium for.

The other part of the equation is how much time the work will take. If you have expected it’ll take 2 days at £300 per day, and it actually takes them 4 you’ll be out of pocket by £600. Your subbie is unlikely to want to work for free for two days, so this is a very important aspect to factor in. We’ll touch on this in more detail below.

Work Out Your Hourly Labour Rate for Employed Staff

Step 1: Find the wage costs:

It is important to include all the wage costs:

• Base wage
• Bonuses
• National Insurance (typically 15%)
• Pension contributions (minimum employer contribution is 3% for those that opt in)

Over and above the base wages costs it is safe to add 20% for tax, national insurance and pensions which are all costs which you cannot avoid. This is what we will call employer costs. This can include your training costs, PPE etc – anything which you have to pay to get that tradesperson standing there on site every Monday morning (excluding their holidays etc).

Example Calculation:

• Salary: £35,000 (including any bonuses you might pay)
• Employer costs: £7,000 (20% of £35,000)
• Total: £42,000

Step 2: Find the worked time:

This is the hours or days worked. We typically use a day at Price Doctor as this is an easier unit of measurement which everyone can picture – if we say people work 220 days per year feels more understandable than 1,760 hours per year. It is easy to work one from the other though – divide your days by 8 hours (or whatever your typically day is) to get the total number of hours.

**Warning** Ask an AI chatbot what your working days or hours in a year are and it is almost certainly going to overestimate it! This means you’ll be under-pricing yourself and your team.

This is the calculation for construction days work which you can use to accurately determine your day rate:

• 365 days per year (assuming not a Leap Year)
• Less your weekend days (assuming you don’t work them – you work a Monday to Friday only) – 52 weeks per year with 2 weekend days = 104
• Less the 8 bank holidays (again we’re assuming you’re not planning to work these)
• Less holidays – let’s take the statutory amount which is 28 including bank holidays which we have already accounted for, so we minus 20 days here.

This is a total of approximately 230

But, this is not the true figure you can use to calculate your costs as there is additional time which you and your staff have to be paid for but are not working on productive billable jobs. This will include:

• Training – Asbestos, 1^st Aid, working from heights etc. There is a lot of mandatory training required
• Sickness and compassionate leave – this will depend on your policies, but there is still lost time and a cost even if you only pay the statutory minimums.
• Staff welfare time – staff reviews, company meetings, social engagements, toolbox talks.
• Dead time – weather delays, scheduling issues such when you cannot start a project or trade as there have been delays with another project. Unforeseen issues which stop projects and you need time to redeploy staff and yourself elsewhere.
• Marketing and sales time; sales visits, surveys and time spent pricing and creating estimates. You might account for this elsewhere in your calculations but don’t forget to add it somewhere.

Every firm is different, so you have to make an estimate for what you think is needed. It is very realistic to take 10 days per person so account for this.

This brings your annual total working days to 220.

Step 3: Calculate the Rate:

Simply divide the total labour costs by the working time.

Sample Calculation:

Back to our example, divide £42,000 (total wage cost) by 220 days = £190 per day.

Estimate Total Hours Required

Once you have the cost of the time the next stage is to work out how long the work will or should take. Most people will have a good idea of how long most jobs in their trade will take, and will quickly get a feel for what their people are capable of.

If you are taking on something unusual or need to get a better estimate of the expected time for projects there are a number of methods which might be helpful. We cover this in more detail in another guide, but here’s some quick tips:

1. Break the project into tasks and the assign realistic hours to each:

• Groundworks
• Structural work
• Finishing
• Then Add 10–20% contingency for delays.

2. Use data from past projects

• How long did similar projects or tasks take?
• Ask your team how long they expect to take.
  3. Use production/productivity rates
• There are estimates of what output can be achieved in a given timescale, usually a day, such as number of bricks layed etc.
• Remember to account for complexities and variations from the “standard” which most production rates are based on
• A simple web search will find the production rates for most trades or for a comprehensive list for all trades, the Royal Institution of Chartered Surveyors (RICS) publish a book which is regularly updated called SPON’S
  4. Use software – like Price Doctor – which will have all the production rates built in and will be used in the calculations

Pro Tip: Always add a buffer (10–20% depending on complexity and type of work) for:

• Delays
• Weather
• Unexpected issues

It seems a lot to add but you are never going to get a clear run at the any task – there are always interruptions, even it is just chatting to the customer.

Complete the Estimate/Quote

1. Multiply Hours by Rate

Example:

• 5 days × £190 per day = £950

2. Add Indirect Labour Costs (if not already included)

Include these and any others:

• Site management
• Travel time
• Admin work

3. Add Profit Margin

Typical UK margins:

• Small jobs: 20–45%
• Larger jobs: 15–35%

It is vital you make a profit if you want to stay in business, and your customers should understand this too. The margin should reflect the risk that you will need to take to get the project completed, balanced with other factors such as market rates and complexity.

Top Tips for calculating Labour Costs:

Here are a few tips and takeaways to remember:

Common Labour Costing Mistakes

• Underestimating time required
• Ignoring employer costs
• Not including downtime
• Guessing instead of calculating
• Under-pricing to win work

How to Calculate Labour Costs Faster

Using software allows you to:

• Save labour rate templates Pre-set labour rates

• Automate calculations

• Reduce costly errors
• Save templates for repeat jobs

• Calculate instantly

That’s where Price Doctor helps builders price jobs faster and more accurately.

Final Thoughts

Accurate labour costing is the difference between a profitable job and a costly mistake.

If you want to:

• Save time
• Improve accuracy
• Win more work

Start using a smarter approach with Price Doctor.