Contractors’ feedback in the preparation of NECA’s Financial Performance Report (Index #1055) indicates that project costs divide among three major divisions. In general, the job costs will generally consume about 60 percent by way of material and labor costs. The remaining percentages go to various other expenses for the operation of the business.


One of the costs included in any project is workers compensation insurance. Most contractors’ eyes used to glaze over when any topic connected with insurance arose. In recent years, however, these costs have become so high that they require realistic considerations when working on an estimate. All indications are that these costs will continue to rise and require serious review.

Obviously, it is beyond estimators to regulate the workers compensation insurance rates, but their work product can and does benefit from more realistic rates. Of all the various insurance products, workers compensation insurance is by far the costliest. In some types of work, the rates can go so high that they may equal or exceed the hourly wage, obviously a point to research before actually beginning an estimate. The higher rates are associated with offshore work, tunnel work and a few other types of hazardous environments. It would be wise to put together a cheat sheet from the company’s insurer, if possible.

Workers compensation insurance is most often based on the number of hours worked by employees. Rates vary depending on the employee’s duties. This results in varying rates assessed to a project depending on the makeup of the crews, as well as the company’s overall workers compensation insurance rates and premiums. In some states, the industry has been able to tie the cost to the number of hours worked rather than the hourly wage rate. This has somewhat equalized costs where this has taken place.

While it may sound like nitpicking, analyzing and establishing a cost sheet for workers compensation insurance rates is not unrealistic. Since the insurance carrier will audit the employer’s payroll to determine the premium paid, it makes sense to have the accounting department set up a table of the various rates so the estimator can include these costs with accuracy. These rates may change periodically and therefore the data should be dated.

Workers compensation insurance rates are set by state, so there is no standard rate throughout the country. Depending on the wages paid in the area, an injured worker’s benefit will depend on that base. The method for calculating the insurance rate is determined by the number of hours worked. If a worker puts in a normal 40-hour week, plus eight hour of overtime, the number used by insurers is 48. If the worker’s overtime was worked on a time-and-a-half rate, the actual payroll check would be for the equivalent of 52 hours, but this is not used by insurers.

Signatory contractors’ wages are above those of the industry’s non-signatory element. This leads to signatory contractors being penalized because of the higher wage rate being used to calculate benefits. In some states, the move toward basing the premium on the number of hours worked in place of the wage rate has met with some success.

A very important factor that affects rates is the company’s experience. This factor is applied to the base rates. For example, a company with an 83 percent experience factor multiplies its base rate by .083. The company clearly benefits from a good safety record. Again, the estimator spotting a hazard in a job and alerting its supervision may help to reduce the expected concern.

The responsible parts of the construction industry are increasingly finding that safe practices, reducing accidents, and investing in safe labor-saving devices will bring a return on the investment. Companies have found that when dealing with discriminating buyers of services, they will tend to look more seriously at those companies that will bring a safe attitude to the project. These concerns are also borne out when the company can boast about the employees’ additional training, and as is possible in some states, the licensing of the crafts people.

The bottom line is not just a low price, but the overall safety and skills represented by the firm. To apply the sharp pencil and reduce project costs, have someone analyze the insurance costs and provide the estimators with the best figure to recover. EC

DAVID is a professor of electrical technology at Long Beach (Calif.) City College, a consultant and an expert witness. He can be reached at 562.597.1877 or at edavid@lbcc.cc.ca.us.