Labor Rate Study Guide
Core Concepts
Terminology and structures you must know before calculating any labor rate.
Everything above the wage
The total add-on cost per labor hour: overtime premium, fringe benefits, payroll taxes, and insurance. The “true” cost of an employee goes well beyond their hourly wage.
Benefits paid per hour worked
Hourly amounts paid to union trust funds: health & welfare, retirement pension, apprenticeship training, legal funds, etc. Paid for every hour worked, not just straight time.
Time beyond 8 hrs/day or 40 hrs/wk
Hours over 8/day or 40/week are paid at 1.5× the straight-time wage. Saturdays and Sundays are commonly overtime. Holidays may be 1.5× or 2× depending on the labor agreement.
Converts OT schedule to equivalent rate
OTF = Hours Paid ÷ Hours Worked. Multiply by the base wage to get the “effective wage” — a single $/hr that accounts for the planned work schedule’s overtime.
Wage adjusted for overtime schedule
Base Wage × OTF. Example: $40/hr base × 1.17 OTF (60-hr week) = $46.80 effective hourly wage. Fringes and taxes are then applied to this effective wage.
CBA-covered employees
Wages and fringes set by collective bargaining agreements. In Alaska civil construction: Operating Engineers (IUOE), Teamsters (IBT), and Laborers (LIUNA) are common unions.
Federally-funded minimum rates
On federally-funded contracts, minimum hourly wages and fringes are set by the federal government and must be paid to all craft employees at the project site.
State-funded minimum rates
Alaska state-funded equivalent. When both state and federal funding apply, the contractor must pay the greater of the two rate schedules. Rates are usually very close.
Required injury insurance
Mandatory in Alaska. Premiums are per $100 of payroll and vary by job class code (e.g., road paving vs. bridge steel). Calculated on straight-time wages only — no OT premium.
Safety record affects WC premium
Insurers assign a modifier based on loss history. A 0.70 modifier (great safety) reduces premiums; a modifier >1.0 (poor safety) increases them. Safety pays!
G/L premium in the labor rate
When G/L premiums are based on gross wages (like WC), they’re included in the labor rate. If based on another metric, they’re allocated as an Indirect Cost instead.
Employees without CBA representation
Wages and benefits set directly by the employer. Still subject to Davis-Bacon minimums on public projects. The same burden calculation process applies.
| Component | Basis | Applied To | Notes |
|---|---|---|---|
| Base Wage | $/hr from CBA or wage schedule | All hours worked | Starting point |
| Overtime Premium | 0.5× base wage per OT hour | Hours >8/day or >40/wk | Captured via OTF |
| Fringe Benefits | $/hr (set by CBA) | Every hour worked | Health, pension, training, legal, etc. |
| Social Security (FICA) | 6.20% | First $147,000 gross wages | Annual max ~$9,114 |
| Medicare (FICA) | 1.45% | All wages, unlimited | No cap |
| FUTA | 0.6% | First $7,000 gross wages | Annual max $42 |
| SUTA (Alaska) | 1.6% | First $45,200 gross wages | Annual max ~$723; experience-rated |
| Worker’s Compensation | Per $100 straight-time payroll | Straight-time wages only (no OT premium) | Rate varies by class code; modified by safety record |
| General Liability Insurance | Per $100 straight-time payroll | Straight-time wages only | Only if premiums are wage-based; else → Indirect Cost |
| Code | Description | Rate per $100 Payroll |
|---|---|---|
| 5506 | Road Construction – Paving or Repaving | $7.25 |
| 5040 | Iron or Steel Erection – Bridges | $18.50 |
| 6217 | Excavation – NOC (Not Otherwise Classified) | $8.50 |
Formulas & Tax Rates
Every formula laid out clearly, plus current payroll tax reference.
Overtime Factor (OTF)
Hours Paid = (ST hours × 1.0) + (OT hours × 1.5) + (DT hours × 2.0)
Example — 60-hr workweek:
Hours Paid = 40 × 1.0 + 20 × 1.5 = 40 + 30 = 70 hrs equivalent
OTF = 70 ÷ 60 = 1.167
| Work Schedule | ST Hrs | OT Hrs | Hrs Paid | OTF |
|---|---|---|---|---|
| 40 hr/wk (no OT) | 40 | 0 | 40.0 | 1.000 |
| 50 hr/wk (5×10) | 40 | 10 | 55.0 | 1.100 |
| 60 hr/wk (5×12 or 6×10) | 40 | 20 | 70.0 | 1.167 |
| 60 hr/wk (6 days, Sat=1.5×) | 40 | 20 | 70.0 | 1.167 |
| 70 hr/wk (7×10) | 40 | 30 | 85.0 | 1.214 |
Effective Wage
This is the hourly wage cost that accounts for the OT schedule.
Example: $40.00 × 1.167 = $46.67/hr effective wage
Payroll Tax Cost per Hour
Tax $/hr = Annual Wage Cap × Rate% Annual Hours Worked [for capped taxes, if employee hits cap]
For most craft workers who don’t hit annual wage caps, simply apply the % to effective hourly wage.
For higher-paid workers or long seasons, cap the tax at the annual maximum and divide by annual hours.
Worker’s Compensation & GL Cost per Hour
Important: WC and GL are calculated on straight-time wages only — the OT premium is excluded.
WC Rate = class code rate (e.g., $8.50 per $100 for excavation = 0.085 × wage)
Modifier = safety experience factor (e.g., 0.70 for excellent, 1.20 for poor)
Total Burdened Labor Rate
All terms expressed in $/hr. The result is the contractor’s true all-in cost per labor hour (excluding supervision overhead).
Worked Example
Step-by-step labor rate buildup for a hypothetical Operating Engineer on a 60-hour workweek schedule.
Assumptions
Step 1: Overtime Factor & Effective Wage
Step 2: Payroll Taxes
Step 3: Insurance (WC & GL)
Step 4: Combine Everything
Rate Calculator
Enter your employee’s details to calculate a fully burdened hourly labor rate on the fly.
Wage & Schedule
Insurance
Payroll Taxes (2022 AK Rates Pre-loaded)
Results
Flashcards
Click any card to reveal the answer. Self-quiz before an exam or site estimate.
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