The first employee is often a field laborer or a crew foreman. The owner assumes the employment cost is the wage. The actual employment cost is wage plus employer taxes plus workers comp plus general liability allocation plus any benefits. That gap between assumed cost and actual cost is the first overhead mistake most construction owners make.
Calculate total employment cost before making the offer. Wage times 1.07 for employer FICA (7.65% on wages up to the Social Security wage base). Add workers comp insurance rate for the trade - typically 5-15% of wages. Add general liability allocation. Add any benefits. The result is the true employment cost that goes into either COGS (field labor) or SG&A (office staff).
Field labor belongs in COGS. Admin and office belongs in SG&A. A field foreman posting hours to jobs is a direct cost - goes in COGS. An office manager handling phones and paperwork is overhead - goes in SG&A. The distinction matters for gross margin calculation and overhead rate accuracy. When field labor is coded to SG&A gross margin appears artificially high and overhead rate appears inflated.
Update the overhead rate on hire date. If the first hire is an office or admin role their total employment cost is SG&A. Recalculate SG&A divided by revenue immediately. Update the bid model the same day. Every bid submitted before the update is underfunded by the new SG&A cost divided by revenue.
Set up payroll before the first day. The first paycheck must have correct withholding, employer taxes, and workers comp reporting from day one. SPM does not handle payroll but has vetted payroll partners who handle setup and ongoing administration including quarterly reporting and year-end W-2 processing.
