5.3 Labor Productivity, Overhead & Project Costing
Key Takeaways
- The loaded labor rate is base wage plus employer FICA of 7.65 percent, FUTA and Florida reemployment tax on the first $7,000 of wages, workers' compensation, and other payroll-tied insurances and benefits — not wage alone.
- When overhead and profit are budgeted as percentages of sales, selling price equals job cost divided by (1 minus overhead percent minus profit percent); a 30 percent markup on cost does not equal 20 percent overhead plus 10 percent profit of sales.
- General-conditions costs are job-specific (permits, lifts, dumpsters, dedicated supervision); company overhead is the annual cost of being in business and must still be recovered in the bid.
- Cost of financing includes retainage, line-of-credit interest, and slow applications for payment under AIA A201 Article 9; a 255.05 bond premium is a job cost equal to a percentage of the contract price.
- Costs of growth — more trucks, more workers' compensation deposits, more retainage, and thinner working capital — can reduce surety capacity even when sales rise.
5.3 Labor Productivity, Overhead & Project Costing
Pricing the offer is an accounting problem. Builder's Guide to Accounting (2001) and the Contractors Manual 2025 treat a bid as a job-cost budget: direct materials and equipment, loaded labor, subcontract, general conditions (job overhead), recovery of company overhead, cost of financing, and profit. Bidding "equipment plus a number we used last year" is how firms win work they cannot cash-flow. Area B item 4 tests labor productivity, insurances associated with labor rates, taxes associated with labor rates, company overhead, general conditions costs, cost of financing, costs of growth, and business projections in the same breath as the contract documents in 5.1 and 5.2.
Direct cost, loaded labor, and productivity
Direct costs attach to one job: the 3-ton condenser and air handler, line-set and pad, permit for that address, boom lift for that roof, and the mechanics' hours on that site. Indirect costs (company overhead) keep the doors open whether or not that changeout exists: shop rent, office salaries, CILB fees, advertising, unapplied truck time.
Labor productivity converts a takeoff into hours. A changeout in an empty new house is not the same job as a changeout in an occupied Pinellas bungalow with a 2-foot attic, a 95°F roof, and a homeowner who will not let you run the vacuum after 4 p.m. Productivity factors the exam expects you to think about:
- Access: attic, crawl, mechanical room, roof with no hatch, occupied classroom.
- Height and rigging: a 40-ton rooftop unit needs a crane (and a Class A license); a 3-ton condenser may need only a hand truck and two people.
- Occupied versus vacant; night or weekend work on schools and hospitals.
- Weather: Florida summer heat, afternoon storms, hurricane shutdowns.
- Repeat versus first-time: production changeouts versus one-off custom duct.
- Quality of as-builts and whether you bid from a site visit (the A701 representation) or from a phone photo.
Hours times base wage is not the labor cost. The loaded labor rate (labor burden) adds the taxes and insurances associated with labor.
| Burden component | What it is | How it hits the rate |
|---|---|---|
| Employer FICA | Social Security 6.2% plus Medicare 1.45% = 7.65% of wages (Social Security applies up to the annual wage base) | Percentage of payroll on every hour |
| FUTA | Federal unemployment; 6.0% statutory, typically 0.6% net after the 5.4% credit, on the first $7,000 of each employee's wages | Small per hour after the wage base is met; still in the annual burden budget |
| Florida reemployment (SUTA) | State unemployment on the first $7,000 of wages at the employer's assigned rate | Construction accounts are often higher than a new-office rate; use the assigned rate, do not invent one |
| Workers' compensation | Chapter 440 premium as a percentage of payroll by class code (field HVAC versus clerical) | One of the largest burden items; an exemption does not cover employees |
| General liability allocated to payroll | Commercial GL is often rated on payroll or receipts; CILB's $100,000 / $25,000 is the licensing floor, not the job specification | Either inside the labor rate or inside overhead — count it once |
| Other benefits | Health insurance, paid time off, vehicle allowance, uniforms | Policy choice; if you pay them, they are burden |
If the mechanic earns $28.00 per hour and field burden (FICA, workers' compensation, general-liability allocation, paid time off, unemployment taxes) runs about 40 percent, the loaded rate is $39.20. Sixteen productive hours are $627.20 of labor cost, not $448. Using $28 in the bid and hoping overhead "covers FICA" is how the job-cost ledger in Builder's Guide to Accounting shows a labor overrun with no extra work.
Circular E (in the Contractors Manual 2025) is the federal withholding reference; it does not replace the employer's own FICA match. Employee withholding is not a contractor cost. The employer match is.
General conditions versus company overhead
General conditions costs are job-specific overhead: dumpsters, site supervision, daily cleanup, storage containers, school-badging, crane and flaggers, dump fees for the old 40-ton unit, permit and inspection fees, temporary cooling, safety on that site. They are not profit. If you omit the crane from a 40-ton rooftop lump sum, you did not have a productivity problem; you had a takeoff problem.
Company overhead is the annual cost of being in business: rent, utilities, office staff, dispatcher wages, software, licenses, shop tools, unused truck time, advertising, professional fees (CPA, construction attorney), interest that is not job-specific, and insurance not loaded into labor. Area B tests business projections: if annual overhead is $240,000 and you need a 10 percent profit, you cannot recover that by adding 10 percent to each job's direct cost and hoping volume appears.
Put general conditions on the job that caused them. Put company overhead into the recovery percentage. Counting shop rent as a job cost on a 3-ton changeout and as 20 percent of sales is double-counting; omitting both is the more common way to go broke.
Markup versus margin — overhead recovery in a changeout
This is the arithmetic the exam uses to punish contractors who confuse markup (percent of cost) with margin (percent of selling price).
If overhead and profit are budgeted as percentages of sales, the selling price is:
Selling price = Job cost ÷ (1 − overhead% − profit%)
Worked 3-ton changeout (illustrative dollars for the method, not a price book):
- Equipment and material: $3,200
- Loaded labor (productivity-adjusted hours at the loaded rate): $650
- Job general conditions (permit, disposal, refrigerant recovery, fuel): $350
- Job cost: $4,200
The company must recover 20 percent of selling price as company overhead and 10 percent of selling price as profit:
- Selling price = $4,200 / (1 − 0.20 − 0.10) = $4,200 / 0.70 = $6,000
- Overhead recovered: $1,200
- Profit: $600
The trap bid is $4,200 × 1.30 = $5,460. That 30 percent markup on cost is only about 23 percent of sales, which does not yield 20 percent overhead plus 10 percent profit. The firm "wins" the changeout and slowly liquidates. Break-even volume is overhead divided by contribution margin. With 20 percent overhead as a percent of sales, every $1 of sales contributes $0.20 toward overhead before profit; $240,000 of overhead needs $1,200,000 of recovered sales at that margin, before you take a dollar of profit.
Allowances and change orders must use the same loaded rates. A $400 extra drain pan and condensate pump that you price at material-only is unpaid labor burden and unpaid overhead. AIA A201 Construction Change Directives that are later priced "at cost" still need the loaded labor rate and the overhead rule stated in the contract.
Cost of financing and costs of growth
Cost of financing is the price of money tied to the job. Retainage (often 5 to 10 percent until substantial completion under A201 Article 9) is an interest-free loan to the owner. Slow applications for payment, unpaid stored materials, and net-30 suppliers against a customer who pays on a draw schedule all create a working-capital gap. A line of credit at 10 percent to carry that gap is a real job cost; either the bid includes it or company overhead must. Bond premiums on 255.05 work are a job cost (a percentage of the contract price). Do not treat the bid-bond cost as free because "we didn't win." Lost bid-bond capacity and lost estimating time are overhead.
Costs of growth are why a shop that doubles revenue can run out of cash. More trucks mean notes, insurance, and empty-return fuel. More field payroll means more workers' compensation deposits and FICA. More volume on thin-margin changeouts means more retainage stuck on other people's books. Sureties underwrite character, capacity, and capital; bonding capacity is typically a multiple of working capital, not of last year's sales. Rapid growth that eats working capital reduces the 255.05 work you can bid. Business projections in Area B are the forecast that says whether the next four technicians are a profit plan or a surety decline.
Accounting principles from the approved Builder's Guide: match costs to the job (job-cost ledger, not a single "materials" bucket); do not recognize profit on a lump-sum job faster than percentage-of-completion supports; inventory the condensing units you bought in bulk (they are not a job cost until they ship to a site); and never use cash-basis "we had a good month" as the bid markup.
Class A versus Class B still belongs in the estimate. A Class B shop that prices a 40-ton rooftop unit has not discovered a high-margin job; it has priced work it cannot legally contract. The correct projection is zero revenue from that bid, plus disciplinary and 489.128 risk. Class B candidates should still understand large-system costing theory (crane, curb, three-phase electrical coordination, longer startup) because B&F questions are not limited to 3-ton changeouts, but they do not recover overhead by bidding beyond 25 tons / 500,000 Btu.
Florida HVAC scenario
Gulf Breeze Heating, Class A, prices a production 3-ton changeout at equipment plus $28 per hour times 16 hours, no FICA, no workers' compensation, no permit, and no recovery of $240,000 office overhead. A competitor prices the same job at $6,000 using loaded labor and the 20/10 of-sales formula. Gulf Breeze wins at $4,650. At year end the CPA's job-cost report — the document a surety will ask for — shows labor burden, dump fees, and unapplied overhead sitting in "other expense," not in jobs. The firm cannot show working capital for a $180,000 school package that needs a 255.05 bond equal to the contract price. The Class B competitor who declined a 40-ton rooftop unit last month is in better shape: they only bid work they can license, they loaded labor, and they recovered overhead. The exam answer is not "bid cheaper." It is: measure productivity, load the taxes and insurances associated with labor rates, put general conditions on the job, recover company overhead as a percent of sales, and include the cost of financing retainage and growth.
An HVAC estimator has $4,200 of total job cost on a changeout and must recover 20 percent of selling price as company overhead and 10 percent of selling price as profit. What selling price recovers those percentages of sales?
Which items belong in the loaded labor rate used to price HVAC work?
Which statement correctly distinguishes general-conditions (job) costs from company overhead on an HVAC project?