INDIRECT LABOR IN CONSTRUCTION: WHERE IT GOES AND WHY IT MATTERS.
Indirect labor is any labor cost that can't be tied to a specific job: shop time, yard work, travel between jobs, training, equipment maintenance, cleanup, and time between projects. It belongs in overhead, not in job costs. When indirect labor gets buried in job costs, your job margins look worse than they're and your overhead rate is understated. When it's left out entirely, you're losing money on every one of those hours without knowing it. CFOS builds a dedicated indirect labor cost code in overhead so every dollar is visible and every bid recovers it.
Most subcontractors get indirect labor wrong in one of two ways. They charge it to the nearest open job, or they ignore it until the bookkeeper asks about it at month end. Neither one is correct, and both produce the same result, which is an overhead rate that's lower than the real cost of operating the business. Every bid then goes out at that understated rate. The money still gets spent, so it comes out of job margin instead, where nobody can point at it.
WHAT IT MEANS.
Indirect labor is any employee labor cost that can't be tied to a specific project, meaning shop time, travel between jobs, equipment maintenance, training, crew time between projects, and cleanup after completion.
Indirect labor covers every hour an employee works that can't be billed or charged to a specific project. Shop time, meaning maintaining equipment, organizing materials, and prepping tools. Yard work, meaning receiving deliveries, staging materials, and loading trucks. Travel time between jobs when it's not billable. Training and safety meetings. Cleanup after project completion. Time between projects when the crew is on the clock and no job is active.
On a crew of 8 running at $45 per hour fully burdened, two hours per week per person in indirect labor is $37,440 per year. That money has to come from somewhere. If it comes out of job margins, where nobody can see it, instead of out of overhead.
TWO WAYS TO GET THIS WRONG.
Charged to the nearest open job
The most common error is coding indirect labor to whatever job is open. A crew finishes one site and spends two hours loading and driving to the next, and that travel time gets charged to whichever job is easiest to log. The job margins look worse than they are, the overhead rate looks lower than it is, and every bid built on that overhead rate goes out underpriced.
Not tracked at all
The second error isn't tracking indirect labor anywhere. The hours disappear into payroll as regular time and never reach a cost code in the financial system. Overhead is understated, job margins look clean, and the business is losing money on every idle hour with no visibility into how much.
The overhead rate is wrong in both cases
Overhead rate is total overhead expense divided by revenue, so pulling indirect labor out of overhead understates the rate whichever of the two errors caused it. Every bid then prices overhead below what the business costs to run. The math is circular, because the uncovered overhead at the end of the year is the same money that was misclassified at the start of it.
WHAT IT LOOKS LIKE IN DOLLARS.
On a crew of 8 running at $45 per hour fully burdened, two hours per week per person in indirect labor is $37,440 per year. Nobody budgeted that number and it still gets spent. If it's not carried in overhead, it comes out of job margin invisibly.
On a $3M subcontractor with $45,000 in indirect labor misclassified into job costs, overhead appears to be 12% of revenue when it's 13.5%. Every bid goes out at 12% overhead when 13.5% is the real cost to operate. Over 50 jobs a year, that 1.5 point difference is $45,000 in uncovered overhead, which is the same $45,000 that was misclassified in the first place.
WHERE INDIRECT LABOR BELONGS.
Every subcontractor needs an overhead cost code for indirect labor, separate from job costs and separate from direct labor. Employees clock indirect time to that code when they're on the clock and not on a billable job. The code rolls up into overhead automatically, the overhead rate includes it, and every bid recovers it.
The foreman decides where labor gets charged. If foremen default to charging all time to the nearest open job, indirect labor never reaches overhead where it belongs. A 15 minute training on what counts as indirect and how to code it eliminates the misclassification problem for good.
When you calculate the overhead rate, indirect labor goes in as a line item alongside insurance, rent, and equipment. Estimate it off historical payroll data, meaning what percentage of total crew hours are typically not tied to a specific job. That estimate becomes a line in the overhead budget and gets updated annually.
Once the indirect labor cost code is live, compare actual indirect labor to the budgeted amount every month. A crew running higher indirect hours than expected may have a scheduling problem, meaning idle time between jobs, poor sequencing, or a crew that's underutilized between projects. The data makes that visible instead of leaving it as a feeling.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
FREQUENTLY ASKED.
