Pakistan is a developing country with a growing population and ever-expanding infrastructure needs. Consequently, the construction industry is booming, and there is an increasing demand for labour. This has also led to growth in construction work labour rates.
Graana.com, Pakistan’s smartest property portal, discusses the labour rates for construction in the country below.
What Is the Labour Cost in Construction?
The labour cost in construction is the total amount of money that you will spend on labour for your construction project. This includes the wages of all the workers who will be working on the project; the cost of any benefits that they may be entitled to; and the cost of any necessary materials, tools and equipment.
Differences Between Direct and Indirect Cost of Labour
The cost of labour can be split into two categories: direct and indirect. Direct costs are those that are explicitly incurred in the production of goods or services, while indirect costs are those that are not directly tied to the production process but are nonetheless necessary for the business to function.
The main difference between direct and indirect costs is that direct costs can be easily traced back to specific products or services, while indirect costs cannot.
For example, the direct cost of labour for a car manufacturer would include the wages of the workers who assemble the cars, while the indirect cost of labour would include the wages of the workers.
Pros and Cons of Direct Labour Cost
Discussed below are the advantages and disadvantages of direct labour costing:
- The time component is taken into account, thus making labour costs fair and easy to calculate.
- Labour rates are less volatile than material costs.
- Product cost is easy to estimate as production cost, a number of workers employed and amount of wages are proportional to each other.
- The basic information needed to calculate this rate is readily available from the wages analysis statement, and no additional labour costs are incurred.
- There is no differentiation made between expert and unskilled labour, nor are there any wage disparities.
- Time constraints are completely neglected, if the workers are getting paid on a piece-rate basis.
- Workers may misuse this costing by working overtime (overtime work is compensated with higher hourly rates, thus increasing the overall labour cost).
- Fixed and variable overheads are not taken into account separately.
Direct Labour Cost Formula
Costs related to direct labour employment cover social security contributions, wages, and any other monetary benefits are given to direct labour employees/workers.
The direct labour cost is calculated using the following formula:
Cost of direct labour allocated =
(Total direct labour cost/Total man-hours employed) × Man-hours on specific product
Indirect Labour Cost Formula
Indirect labour costs are included in overhead costs and allocated to products depending on variables such as machine hours, direct labour hours, and direct material prices, among others.
Check out the formula below:
Indirect labour allocated Cost =
(Total indirect labour cost/Total of basis i.e., labour hours, machines or rent, etc.) × Basis utilised for certain product
How to Calculate Incremental and Fully-Loaded Labour Rate
Discussed below are the methods of calculating labour rates in two different ways.
Incremental Labour Rate
This is the labour cost that will be incurred if a particular action is executed. For instance, if an employee is asked to work an extra hour, the incremental labour rate will most likely include the individual’s basic wage, any shift difference, and payroll taxes.
Since requesting someone to work extra hours results in a 50% higher incremental labour rate, the concept can have a wide range of outcomes.
Fully Loaded Labour Rate
You can calculate this rate by dividing all possible labour costs by the total number of hours performed by an employee.
The company’s contribution to the employee’s pension plan, all benefit costs, payroll taxes, overtime, shift differential, and the base level of remuneration are all examples of such costs.
This rate is calculated and aggregated for each employee classification type (e.g. part-time employee, contractual employee, etc.).
How to Calculate a Billing Labour Rate
You should consider a variety of factors must be consider when calculating the construction work labour rates. At a bare minimum, the labour rate must be higher than the employee’s additional cost, otherwise the company will lose money for every hour the employee works.
Instead, the company’s overhead costs and a standard profit percentage is accounted into the labour rate, so that a long-term cost is determined as the minimal possible labour rate.
Moreover, another alternative is to just set the labour rate at the current market rate , which could be far more than the employee’s cost. If there is a high demand for an employee, the amount of profit that employee earns may be utilised in this scenario.
Construction Work Labour Rates in Pakistan
According to a poll conducted by an international e-commerce company, minimum wages in Islamabad and Punjab increased 14.4% in January 2022, compared to a year before.
In fact, minimum salaries in these two locations grew to Rs. 19,870 in January 2022 from Rs. 17,370 in January 2021, according to the report. In terms of the US dollar, Pakistan’s minimum salary was $114.
|Category||Minimum Wage Rate Per Day (for 8 working hours)||Minimum Wage Rate Per Day (for 25 working days)|
|Adult Unskilled Workers||Rs. 769.23||Rs. 20,000|
|Juvenile Workers||Rs. 769.23||Rs. 20,000|
In terms of covered area, the current labour rate in Pakistan is Rs. 250 to 380 per sq. ft. of covered area. To read more about the construction sector of Pakistan such as how to obtain a construction permit in Pakistan, visit our Graana blog.