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Saturday, October 25, 2014

Question

I'm looking at submitting a bid for cleaning a car dealership in the central Texas area. It's 19,000 sq ft. After looking through all the comments I've notice a "labor burden charge". What is this?? And is it a standard 20-22%?? I like the price after the charge, but doubt the dealership will. This is my first dealership and I decided to price as a per-day per clean. It's all the standard sweep, mop, dust, polish, trash removal of all areas, all appliance and vending cleaning, quarterly buff/finish floor care and quarterly steam clean, as well as daily spot care of stains, light fixtures as needed, spot clean all interior glass and a quarterly clean of all interior windows My estimate included, 2 people X 4 hours X $15.00 = $120.00 2 people X 4 hours X $25.00 =(2 owners) $200.00 The dealership is thinking about 6 days a week If we just use some easy numbers, $120 X 30 days = $3600 and then you tack on the labor fee of 20% an additional $700+ This equals to $10,000+ per month is that not a lot?? I can't feasibly think to do it for much less than that though....


Answer

Let’s try to get your thinking on an even keel. To start, what is termed “labor burden” is simply the money that must be calculated, based on payroll, to cover things such as Worker’s Compensation, Unemployment Insurance, FICA, Social Security and Medicare matching by the employer, and any other labor related expenses that you, as a business person, must pay in connection with your employees’ paychecks. To figure it accurately, you need to add up all these costs per dollar. It may be 18% or 22% or somewhere in between, but you need to use your figures for your location there in Texas.
Whether this dealership likes this burden being part of the proposal cost is immaterial because the government agencies involved with labor, such as the IRS, insist you pay these costs to stay legitimately in business. The dealership pays all these costs, too. If you pay someone $10 an hour, your burden (the cost of having a payroll) will be around 20%, meaning you will lay out $12 an hour for that person. You don’t get to keep any of this extra $2 as a bonus or whatever. It goes to the related governmental agencies. That money can come from your intended profit or it can be part of the cost calculation, take your pick.
Now, we get to the assumptions I must make from your comments above. It reads as if you are figuring 2 cleaners working for 4 hours each, meaning that the production rate is 2375 sq. ft. per hour. (Perhaps this could be improved) You are charging $15 per man-hour, which I must assume is not what you are intending to pay each cleaner, but actually the charge to the client. This amounts to $720 a week, out of which you deduct the labor rate ($8.50/hr?) and the burden ($1.70 @ 20%?) to leave you a total labor cost of $10.20 an hour. All the math done, you make for the company, $4.80 per hour ($15-10.20) and so your earnings for the week would be 48 x $4.80 or $230.40.

I can’t tell where the 8 hours at $25 per hour comes in.
Just be careful what you tack the labor burden onto and the whole calculation will not look so awesome. And, frankly, $15 an hour is not a high labor rate. Check the dealership and you will likely see something around $65 an hour for a mechanic, maybe higher.

Lynn E. Krafft, ICAN/ATEX Editor
lekrafft@juno.com