It’s 2021, so why are we still frustrated as hell about how hard it is to measure and manage our labor costs?
It all starts with the distributed nature of the work we’re doing.
When I first started hiring skilled workers five years ago, it was like running straight into a brick wall. That’s because I realized accurately tracking work for hundreds of workers scattered across an equal number of worksites was going to make or break my business.
Allowing employees to self-report their work is one way. I learned that an honor system left us open to loads of errors (both accidental and intentional).
Whether it was paper time reports or a simple form an employee could fill out from their phone, the 15-minute mistakes here and there of incorrectly tracked hours added up to a lot of money in excess payroll costs.
You could leave it to your supervisors to carefully monitor and report this data. But most of us in construction don’t have the luxury of having a supervisor dedicated to every single job site.
And even if you do, wouldn’t you rather have your higher-paid leaders spending more time getting the job done than managing paperwork?
It’s no wonder why you keep doing things the way you’ve always done them. But there’s an expensive problem with that way of thinking.
Since labor makes up about $0.50 on every $1 spent in construction, not getting your arms around this is a surefire way to light money on fire.
Technology, the avenue our brothers and sisters in office work have turned to, has failed us so far in helping to solve this problem. That’s because the tools available fall into one or more of the following buckets:
- They’re too complex and expensive.
- They’re not designed for the needs of a small construction company.
- They rely too much on manual data entry, which is error-prone and delays the availability of the information needed.
- There is often no proof or audit trail to give us confidence in the data reported from the field.
- They’re not designed like the easy to use consumer-friendly mobile apps (think Facebook and Uber) that our field employees use in their personal lives.
So, how DO we get our arms around managing labor costs? I see a pathway where we can leverage the right kinds of tools to overcome these challenges.
4 Pillars To Make Your Labor Force More Profitable
1. Reduce payroll costs caused by avoidable mistakes
We often imagine payroll mistakes as a big smoking gun, and big mistakes can mean lots of unnecessary costs. But it’s not the obvious errors that are causing the pain.
The truth is a lot closer to death by a thousand cuts.
Employees arrive at 7:15 but report their start as 7:00. 30-minute breaks turn into an hour. People can’t remember their exact hours and end up guessing at the end of the week.
Those seemingly minor mistakes add up to lots of wasted payroll expenses, and it gets even worse when you add in overtime costs.
All it takes is a $20/hour employee to be off an hour each week. Once you factor in overtime, you’re looking at $2,000 per year per employee in lost profits from those avoidable mistakes.
And that’s just the payroll part. When all those unanticipated costs add up, you may find that you’ve underbid on certain aspects of your jobs.
The small mistakes are impossible to catch unless you have some way to prove your team’s work throughout the day.
Fixing this requires three changes.
Reporting time data on at least a daily basis
Many studies show that reporting time data infrequently results in a dramatic increase in misreported time.
The easiest and most immediate change to make right now requires your employees to report their time daily. How?
You can create a simple Google form, have them text their start and stop times, or have a trusted employee collect paper time reports onsite. You can even use a purpose-built app to collect time from mobile phones.
The critical part is requiring your employees to do it daily.
None of these are perfect, but it’s going to be more accurate than collecting time at the end of the week.
Including a GPS audit trail of self-reported hours
Using any of the above methods will help improve the accuracy of your payroll because it will remove more of the guesswork that goes into reporting hours after the fact.
But none of them give you any of the proof you’ll need to have absolute confidence your payroll is accurate.
The only way to do this is to use software that gives you a complete GPS audit trail of entry time, exit time, exact addresses visited, and mileage driven throughout the day for each employee.
This is more than project-level geofencing. It’s a complete view of work for each employee, and combined with real-time reporting; it’s the modern way to harness the power of mobile phone technology to help you eliminate the loss in profit caused by payroll mistakes.
To get a complete picture of each employee’s day, make sure to look for products that provide user-friendly mobile phone apps.
And remember, geofencing alone doesn’t cut it here. Geofencing only shows you entry and exit times from your established projects but fails to provide information about where your employees go when they leave those projects and are still on the clock.
Automatically calculate workers’ comp and overtime rules to pass to your payroll provider
Once you’ve collected more accurate time reporting from employees, you’ll want to reduce the errors that can occur with manual data entry.
The same technology that gives you confidence in the time submitted can help you automatically calculate overtime and workers’ compensation before passing the data directly to your payroll provider.
2. Improve client reimbursements
Without precise accounting of how much is spent on labor, it’s difficult to prove the work when you invoice your clients.
All it takes is one dispute with a client to understand how valuable it is to have an audit trail showing who did what, when, and where.
By looking for a tool that calculates your employee hours into actual labor costs at the client, project, and task level, you’ll be able to instantly generate reports to share with your clients and prove the work you’ve done.
3. More easily make real-time adjustments to your labor force to keep project profits on track
Here’s a workflow I hear every day:
An owner collects data about work done from the field—anything from old school paper sheets to a web form that’s manually filled in.
Sometimes this information is collected at the end of the week. Is it surprising when start and end times are the same for everyone on the team?
It’s then delivered to someone in the main office who manually enters the data into spreadsheets or some accounting system.
Hopefully, the data is updated weekly.
For many, this is how it’s been done for years. The challenge is that projects change in real-time, and keeping them profitable means making decisions about how you’re running them just as fast. Week-old data doesn’t cut it.
- Feeding your entire team with labor cost data in real-time
- Flexibility in viewing it from projects to tasks to employees
- Calculated in actual dollar amounts, including unique pay rates and overtime
4. More efficiently schedule work by consolidating field communications
After you have confidence in measuring your team’s work, the next area of opportunity is improving how you manage it. And for me, that starts with consolidating your communication about work into one place.
Fragmented communication – like text messages, phone calls, and paper – makes it nearly impossible to make sure everyone is up to speed on what is going on.
It’s also a massive drain to productivity and leaves people spending unnecessary time figuring out what needs to be done vs. doing the work.
Data shows workers spend up to 30% of their time trying to figure out what to do. Imagine the profit gains if you can reduce that wasted time.
Start by capturing the low hanging fruit
There’s a lot that goes into successfully managing any construction business, and god knows you wear a lot of hats to keep things going. But by taking some of these simple steps, you can unlock profits that are within reach.
I was so frustrated by some of these issues that I ended up doing what any good builder does: I decided to build something myself to solve it. You can learn more about it here.