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TL;DR: Owner compensation belongs in SG&A at market rate — always. When it's missing or understated, the overhead rate calculation understates real overhead and every bid is underpriced by the gap. A construction subcontractor owner doing $3M–$8M in revenue should be compensating themselves at $120,000–$180,000 per year. If owner comp is $60,000 in SG&A on a $4M revenue business, the overhead rate is understated by 3–4 points and every bid loses that margin before a dollar hits the bank account.
Overhead Rate
Your Salary Belongs in
Your Overhead Rate.
Most construction subcontractor owners underpay themselves. That sounds like a personal finance problem — but it's actually a bidding problem. Here's why, and what to do about it.
Published: May 2026 · Updated: May 2026
The Problem
Why Underpaying Yourself Is a Bidding Problem
When you calculate your overhead rate — SG&A divided by revenue — you're calculating the percentage of every dollar of revenue needed to cover the business's fixed costs. If your compensation isn't in SG&A at market rate, the overhead rate understates real cost. The bids built from that rate underprice every job. You win more work. You work more hours. The bank account still doesn't grow. That's not a cash flow problem. That's a compensation accounting problem.
What Most Owners Do
Book a nominal salary to payroll — $60,000–$80,000 — to minimize payroll taxes. Take additional draws when cash allows. Never reconcile what the total compensation should be at market rate. The overhead rate is calculated on the nominal salary. Every bid uses an overhead rate that's 3–5 points too low.
What the Overhead Rate Should Include
The full market-rate value of the owner's role — what a hired GM, estimator, and business development director would cost combined. At $3M–$8M, that's $120,000–$180,000/year. That amount goes in SG&A as officer compensation, consistently, every month. The overhead rate then reflects what the business actually costs to run.
The Math
What Understated Owner Comp Costs Per Year
The calculation is straightforward. The cost of understating owner compensation in overhead is the difference between what's in SG&A and market rate, expressed as a percentage of revenue, applied to every bid submitted.
| Revenue | Market-Rate Comp | Booked in SG&A | Overhead Gap | Annual Cost |
|---|
| $2M | $120,000 | $60,000 | 3.0% | $60,000/yr underpriced |
| $3M | $140,000 | $70,000 | 2.3% | $70,000/yr underpriced |
| $4M | $160,000 | $80,000 | 2.0% | $80,000/yr underpriced |
| $5M | $170,000 | $70,000 | 2.0% | $100,000/yr underpriced |
| $8M | $180,000 | $80,000 | 1.25% | $100,000/yr underpriced |
These numbers are the minimum cost of understated owner compensation — before compounding from additional years of incorrect rates, before the effect on WIP valuation, and before the impact on bonding capacity calculations.
The Fix
How to Set Owner Compensation Correctly
Set a market-rate salary — not a tax-minimizing salary. The market rate for your role is what you'd pay a qualified person to do what you do. At $3M–$8M, the owner typically fills the roles of GM, estimator, and business development director. The combined market rate for those roles in 2026 runs $120,000–$180,000 depending on revenue and market. That number goes in SG&A.
Book it consistently every month. Set a fixed monthly officer compensation entry in ControlQore. Not a draw based on available cash. A fixed expense that runs every month, whether or not cash is available. This is what every analysis of your overhead rate will be built on — it needs to be consistent.
Recalculate your overhead rate immediately. Pull SG&A including the corrected owner comp from the last 12 months. Divide by revenue. Compare to what's in bids. Update the bid model. Use the
overhead rate calculator to run the numbers.
Distributions come after overhead is covered. Owner distributions are a use of net profit — not a component of overhead. The business funds overhead first (including market-rate owner comp), generates net income, and then the owner takes distributions from net income. That order matters for every financial decision, including bonding capacity and exit valuation.
FAQ
Frequently Asked Questions
Should a construction company owner's salary be in overhead?
Yes — always. Owner compensation belongs in SG&A/overhead at market rate, regardless of how it's paid (salary, draw, distributions). If the owner's compensation isn't in SG&A, the overhead rate calculation understates real overhead and every bid is underpriced by the difference. The test: if you had to replace yourself with a hired manager, what would that person cost? That number goes in SG&A.
How much should a construction company owner pay themselves?
A construction subcontractor owner doing $3M–$8M in revenue and actively running field operations, estimating, and client relationships should be compensating themselves at $120,000–$180,000 per year in total compensation. This reflects the market rate for the combined GM/estimator/business development role the owner fills. Below $100,000 at this revenue level is typically underpaying — and understating overhead in every bid.
What happens if the owner's salary is not in the overhead rate?
Every bid is underpriced by the amount of owner compensation that should have been in overhead but wasn't. At $150,000 in owner compensation and $4M in revenue, that's a 3.75% overhead understatement on every bid. Over a year at $4M in revenue, the business generated $4M in jobs but only funded $150,000 of the owner's compensation through the business — the rest came from eroding the net profit line that should have been retained as cash.
Should owner draws count as overhead in a construction company?
Owner draws are not the same as owner compensation. A draw is a distribution of profit — it's what comes after the business has covered all costs including the owner's market-rate compensation. If an owner is taking $200,000 in draws but only $60,000 is booked as officer compensation in SG&A, the overhead rate only captures $60,000. The other $140,000 in draws comes from net income — meaning the business looks profitable on paper but the owner is actually funding their income by depleting the business's cash reserve.
How do I include owner compensation correctly in my overhead rate?
Set a market-rate salary for the owner role in the business — what you'd pay someone to do what you do at the revenue level you operate. Book that amount to officer compensation in SG&A every month, consistently. When you calculate overhead rate (SG&A divided by revenue), that compensation is included. The resulting overhead rate reflects the true cost of running the business. If the rate is higher than what's currently in bids, update the bid model immediately.
