Why is reducing labor costs in construction necessary?In the construction industry, more than 61% of the final sales price of a project goes into building costs. These costs generally include the cost of labor and materials. For most of the projects, it splits 50/50 between the cost of labor and materials, but for some projects, it can be up to 30/70. The construction services industry keeps the gross margin close to 19%, but that's on paper. Your profits can dip to a low if the costs of building the project are not appropriately managed. Little can be done about the building materials because you need materials to complete a project. However, efficient management can lower labor costs without taking money away from your employees. Here are some ways to reduce labor costs for a construction project.
How to reduce labor costs in constructionOver the years, the construction industry has devised inventive and ingenious ways to reduce labor costs without sacrificing quality or cheating workers. Let's take a closer look at how it's done.
1. Estimate the cost at the start of the projectUnless it's your first construction project, you will have a good idea of what labor costs will be involved in the project. To provide an estimate, you must use your previous experience with similar projects as a benchmark. You have to consider employee turnover and the increase in the cost of labor. You have two choices - a time and materials contract and a fixed-price contract for the project. In a time and materials contract, you calculate labor costs per hour, and the material prices are flexible and can increase or decrease depending on the project's demand. A fixed-price contract has a total value estimation for a set project. You have to deliver the project within the quoted price. While a time and materials contract pays more, as your client will pay the exact cost of the work based on labor rate and cost of materials, you can quote a higher price. However, there is no structure to project completion here, and construction work progresses on the go. A fixed-price contract is more rigid, with well-defined documentation of specific phases and deadlines. Unless your project goes beyond the defined outline, the price won't change. Some construction business owners find it risky, but this type of contract has defined expectations, and it's much easier to keep the project on track.
2. Review your site crew structure and see if you have the skilled workers for the tasksIn recent years the construction industry has been through a lot. First, the housing crisis of 2008 led to the loss of more than 2 million workers between 2007 and 2011. Then the global pandemic forced numerous construction businesses to suspend labor, close projects, and terminate employees. All these events have highlighted the need for the correct site crew structure. Every construction business has a composite of employees. There are skilled and unskilled workers. Interestingly, many business owners do not understand how to reduce labor costs by giving the right task to appropriately skilled laborers. You must review your site crew structure to ensure that the right people lead the teams. If you have put someone in the position of a supervisor who is better as a worker, consider providing them further training to make them better leaders. This is important to get quality work out of them. Another critical aspect is ensuring your most skilled workers do what they do best. Don't cut on paying them for their performance. It might sound counterintuitive; how can you reduce labor costs when you are spending more money? You are missing the point of quality work. Suppose if one of the supervisors in your team is excellent at electrical work but spends more time overseeing lesser skilled workers, you might be losing money. Their electrical work, such as wiring and lighting, might need redoing. Think about how much it will cost you to redo the entire work. This is why giving skilled workers the right job can help you reduce labor costs.
3. Streamlining your workflow scheduleIn every construction business, it is essential to streamline the workflow. The hard part is how you facilitate the workflow schedule. First, you must ensure that your work flowcharts are created with realistic goals and expectations. Second, workflow schedule charts must be well-defined. They must explain the nature of work and mention which laborer fits best in which subgroup. The workflow schedule must also clearly define the time for each task to get completed. Match over the days' progress of your construction crew with the workflow schedule chart. Discuss and ask for feedback from leaders to make the necessary changes to streamline the workflow schedule.
4. Go paperlessBy digitizing documents such as workflow schedules and performance charts, you can make better decisions on reducing labor costs. Going paperless allows you to stay on top of processes without visiting the site. Your supervisors don't have to waste their time completing paperwork. There is no need to enter data into a system manually. With automation, you can easily track the construction project's production at every phase. Truein is an AI-powered face recognition time and attendance management software based on the cloud network. With this software, you can ensure workers are present on site through GPS and geo-fencing features. It tracks attendance in real-time, offers shift scheduling, and eradicates time punch errors. It enables you to pay laborers for hours they work accurately.
ConclusionBeing on top of material and subcontractor costs is not enough to make your construction business profitable. You have to manage labor cost-efficiently as it can take up to 50% of your revenue. We hope these tips will help you reduce labor costs.
What is a labor shortage?The labor shortage is a term that indicates a gap between the labor needed in industry and the number of workers available to fill in the requirement. Simply put, there are more jobs available than the workers. It can be because workers are less willing to work in a position or a scarcity of skilled labor. The pandemic accelerated the labor shortage issue as, during the last two years, 1 in 4 workers quit their jobs since the pandemic and have not returned to work. It is becoming a struggle to find workers to fill open positions. Manufacturing, construction, hospitality, transportation, and healthcare are the most affected industries. If you pay attention, there is a common factor in all these industries-they require the workforce to be available in person during work hours. Also, most of these industries employ blue-collar workers and heavily rely on laborers to operate.
Why is there a labor shortage?The labor shortage is not only because of fewer people willing to work; there can be several other factors contributing to your business' struggle with finding or retaining the right talent. Be mindful that none of these reasons prevents you from retaining the workers.
Poor compensationThis reason is easiest to anticipate. Workers want to be paid more, at least what they are worth. Industries like construction, mining, healthcare, and manufacturing especially face labor shortages as the pay is less than in other sectors. The limited wage is not enough to meet the increased cost of living and healthcare, pushing workers to look for positions that pay them better.
Lack of flexibilitySince the pandemic, employees have been more discerning of opportunities that allow them to have a better work-life balance. Workers now seek increased flexibility, but employers remain reluctant to offer the same. According to a survey by Future Forums of 10,000 knowledge workers, employees want more flexibility in jobs and, if possible, location. As remote working is not an option for most of the mentioned industries, an evident lack of flexibility causes workers to look for work in other segments.
A question of purposeFor many employers, it may seem inconsequential, but workers are increasingly losing their sense of purpose at work. Employees who are not connected to their workplace cannot be passionate about their jobs. It eventually forces them to leave work. If your company is facing a labor shortage, reevaluate the work environment, and if missing, try to create opportunities that will make employees feel more excited about their roles. Indeed surveyed workers who voluntarily left their jobs in 2020 and found that 92% of the respondents felt "life is too short to stay in a job they weren't passionate about." If workers do not feel connected with the company's goal and vision, they may not be inspired to stay at the job.
8 Ways to deal with the labor shortage
1. Train and cross-train existing employeesThe mass exodus of the workers can leave companies in limbo if those leaving are skilled workers. You must implement training programs to help workers across domains acquire common skills to keep business operations up if there is a labor shortage. Cross-training employees can help. For instance, production staff can be trained to handle maintenance responsibilities if the situation arises. Cross-training does more than retain employees; it creates a sense of value and community.
2. Improve the work environment to reduce employees leaving the organizationAs we mentioned above, the work environment is one of the main reasons why employees work or leave a job. You are walking in circles if you are wondering how to solve workforce shortage without addressing the issues causing employees to leave. Ensure that the work environment is positively inductive for employees. For example, if you are in the manufacturing industry, your employees must feel safe at work with all safety measures.
3. Recognize and reward employeesAcknowledging workers' hard work and sincerity and rewarding them appropriately will boost their morale and keep them engaged. Make sure your employees are not feeling neglected, and their efforts are recognized and rewarded. Just offering perks alone is no more an incentive good enough to keep workers; you have to make them feel appreciated and valued as part of the team.
4. Make opportunities for them to develop and growPandemic has changed the workforce a lot. Everything needs improvement – skills required for the job, where and how work is performed, and what motivates the workforce. To overcome labor shortages and retain employees, you must create opportunities for them to learn and grow. Take a fresh look at the workforce and try to identify opportunities where you can introduce improvements. For instance, if your manufacturing unit relies on manual labor for production, you can introduce CNC machines for repetitive tasks and train the workers. This will present them with an opportunity to develop and grow.
5. Automate tasksIf your company has scope for automation, explore solutions for the same. The more automated tasks are, the lesser workforce will be required. In the wake of the rising cost of labor and the shortage of workers, several companies have considered automation to reduce the up-front cost of hiring or maintaining a large workforce. Partnering with consulting firms to explore automation integration in the business processes will provide an answer to how to solve the workforce shortage. For example, you can use automation to help remove infrastructure bottlenecks and free up human resources to work on operations that contribute to the revenue directly.
6. Pay bounties to employees who bring new employeesWhy not turn your workers into headhunters by offering them incentives for referring talent to the company? Instead of outsourcing the hiring process or relying on the HR team to solve workforce shortages, you can introduce a referral bonus for employees to bring in new talent. At some of the most successful companies, 28 to 30 percent of the new hires come from employee referrals. If they can do it, so can you.
7. Be flexible with schedulesFlexibility is a requirement, not an option, to retain workers. Now employees seek a more positive work-life balance and opportunities that offer the flexibility to work. By creating flexible work schedules, you can let workers feel relaxed about their routine and not stressed. It will help prevent employees from leaving.
8. Use time tracking toolsEmployees adequately compensated for their work time build trust in the managers and the company. Using time and attendance management tools to record attendance would be best. Such tools also free HR managers from manually managing attendance and shifts, a process often susceptible to human errors. Truein is a face recognition attendance system that can help companies schedule shifts, track timing, and efficiently distribute workloads among employees. It can automate report generation, directly integrate attendance records with payroll software, and for remote sites and field workers.
ConclusionThere is no telling when markets will emerge victorious from the acute labor shortage facing businesses today. While the HR gurus can only make predictions based on surveys and studies, business owners need to make tough decisions. The strategies we have listed here are helping companies across the globe overcome the labor shortage. We hope you, too, can recognize what's causing the labor shortage at your company and implement the appropriate measures to fill in the gaps.
The Indian construction industry is a major player contributing to the economy's growth. At the center of the focus of the government's initiatives to create world-class infrastructure in a time-bound manner, the construction industry is poised to receive investments of up to $1.4 trillion by 2025.
Without a doubt, the construction industry is crucial to driving the country's growth, but it needs some reforms too. The industry is the second-largest employer, with over 51 million workers. Furthermore, the construction industry created 45 million additional jobs directly or indirectly. It is easy to anticipate that there certainly will be management challenges with such a large workforce.
In this article, we will focus on overtime in the construction industry. We will take a look at the challenges and available solutions.
What are the construction industry overtime rules?
As the construction industry primarily has a workforce working at sites, time management is a complicated task to achieve. Keeping track of workers is a gigantic task.
It is important to understand what laws govern and protect workers' rights in the context of overtime. Here are the essential labor laws an employer must be aware of.
|Act||Provisions under the Act|
|Factories Act, 1948 Sec. 51, 54 to 56 & 59 of the Act include overtime wages.||Under section 59 of the Factories Act, it is clearly instructed that a worker who works for more than 9 hours any day or for more than 48 hours in a week will be entitled to receive wages in respect to overtime work at the rate of twice his/her ordinary rate of wages.|
|Minimum Wages Act, 1948||It also applied to construction workers. According to section 33 of the Minimum Wages Act, overtime wages must be twice the rate of the ordinary wages of the worker. Sec. 14 of the Act states that for workers, if the minimum rate of wages is fixed by the time period, such as by the hour, by the day, or by any such period, and if any worker works more than that number of hours, it will be considered overtime.|
|Contract Labour (Regulation & Abolition) Act, 1970||As per Rule 79 of the Act pertains to the law regarding overtime calculation for contract workers. According to the act, every contractor must maintain a Register of Overtime in Form XXIII. All important details like the employee's name, overtime calculation, hours of extra work, etc., must be recorded in the register.|
|Building and Other Construction Workers (Regulation of Employment Service) Act, 1996||Under Section 28 & 29 of the Act, it is mentioned that construction workers who work overtime as per the regulations mentioned above must be remunerated at the rate of twice the ordinary rate of wages.|
Companies struggling with managing overtime for construction workers can end up with losses. As the law requires to pay twice the ordinary wage rate, overtime can have substantial financial liabilities. Let's explore some measures to control overtime in the construction industry.
6 Tips to manage overtime in the construction industry?
1. Identify the issue
If unexplained overtime is reported in the company, it is essential to know why it is happening before resolving the issue. Overtime construction can result from several problems such as heavy project loads, poor time management, and staffing shortage. These are some of the issues on the management site. Audit the HR and managers' logs to understand the staffing and work distribution. It is also not uncommon in the construction industry to find employees working overtime for the extra pay.
You have to get a clear idea of the issues to decide how to manage overtime for construction workers.
2. Be aware of local overtime laws
The central government of India implements the labor laws we have listed above, but there are specific local labor laws that a company must be aware of.
For example, Maharashtra has tweaked the local labor law to allow longer working hours and overtime periods for workers. As per the rule, "With the exemption from Sections 51,52, 54, and 56, employers can allow labourers to work in two shifts of 12 hours each."
3. Track work hours with GPS construction time tracking software
As mentioned above, tracking employees' working hours is a significant challenge in the construction industry. Field workers are away from CCTVs, so there is no sure way to know if they are working or not.
Using GPS-enabled attendance systems, you can overcome this challenge. Truein is a face recognition attendance system with geofencing and GPS tracking features. It can be used to record overtime for construction workers through the app on their smartphones.
4. Cross-train employees
The skill gap is a problem that increases over time in the construction industry. If you do not have the workers with the required skills, it can slow down productivity. Also, if the company is understaffed, project tasks can take longer to complete. The solution lies in cross-training employees to take up multiple roles if there is demand.
5. Hire contractors
Building on the above issue, if the overtime construction does not seem to stop even after cross-training workers because of staff shortage, you need to hire contractors. Hiring an independent contractor workforce can compensate for the deficit, and the overtime can be eliminated.
6. Improve work allocation and management
If the HR managers regularly cram overtime at the end of projects, it indicates poor time management. When you fail to anticipate the project's timeline or resources, which will be required at the initial stages, the task becomes hard to manage as the deadline arrives.
The managers must spread out hours from the beginning of the project so that no overtime occurs later.
Unmanaged overtime in the construction industry can be a real nuisance. It can create revenue overheads that reduce the profits, but more importantly, it can take a toll on employee productivity and health. With efficient employee tracking software for construction idustry like Truein, unnecessary overtime can be eliminated and boost the company's efficiency.
Construction industry uses large scale manpower and has a unique challenge of dealing with the ever-changing contract staff attendance. We’ve helped construction companies get over their biggest bane with a practical solution, especially designed for them.
The current attendance scenario in the construction industry
Construction companies would agree that there are no fixed sites. New sites come up and old ones close down all too often. It is not practical to install machines to track attendance. Manual attendance by the security guard is the most common practice. The result?
Who is signing attendance for whom? Nobody would ever know. The actual site may have ten people, but the company may be paying for twelve. Small leakages like these in the contract labour attendance system can result in big cheques and losses eventually.
It can also have legal and security implications too as there is no real way of knowing who you are employing.
Even in a perfect world where everyone is honest and truthful at attendance time, there is scope for mistakes. There can be date errors or spelling errors. Contract labour may not be educated enough to realize it and it may go completely unnoticed.
Manual attendance at the end of the day, week or month has to be converted into excels for payroll processing. It can be many days of unproductive work, further prone to errors.
How can construction industry have better attendance monitoring?
Truein face attendance is one app with many solutions for the construction industry. Let’s break it down for simplicity.
Your sites keep changing so you don’t have to invest in attendance infrastructure. Install any temporary stand to hold a tablet at the gate and let workers simply walk in using face attendance. Don’t have a closed gated site? Truein face attendance needs no hardware. It works on any Android or iOS mobile too. The security guard can be given a mobile to take face attendance of contract workers on site.
What you see is what you get! A face recognition-based system cannot be fudged or overridden. Besides, Truein works in the most complex scenarios too:
- Construction site has low-light or works in night shift? Our system works.
- Construction site is in a remote location with no internet? Truein works offline too.
Truein works practically hundred percent of times so there is no scope for parallel systems like manual registers.
When you have contract staff that keeps changing every day, you cannot afford to have a slow or long onboarding system. How about a one-click system? The new joinee captures his face from the kiosk or mobile and his onboarding is completed. Every other detail like reporting manager, contractor agency, shift assignment etc. can be managed in our web dashboard later.
If you want to restrict the attendance of a worker to one site, you can do that using our technology. We allow you to fence the attendance by marking the GPS location. He can mark his attendance only within those geographical boundaries.
All entries get stamped with location and time, so you have a verifiable audit trail at all times.
Practically no-fuss, quick and accurate system is what we have to offer.
What’s more? We have clients in the construction industry who have used our system for more than four years at multiple sites on a large scale. Tried and tested? You got it!
Testimonial from a leading construction brand
Girish Nambalkar from SJ Contracts says, “Using a face attendance system at construction sites was a big challenge. Team Truein calmly understood our requirement and provided required customization too. Truein is an excellent solution. As of today, we are using Truein attendance system at our 22 sites. We found that Truein is more user-friendly and easier to use. The required reports ae also generated by the individual users irrespective of his location.”