RHACOVA

Labor and overhead

The Real Cost of an Owner Working in the Field

If you do not cost your own hours, every job you work on looks better than it is — and the jobs you hand to the crew look worse by comparison.

The short answer

Your field hours are not free. If you swing a hammer for 40 hours on a job, that job consumed 40 hours of the most expensive labor in the company — and 40 hours you did not spend estimating, selling or running the business. Cost those hours at a loaded rate and put them in the job, or every job you work on will look more profitable than it is.

Definitions

Owner field hours
Hours the owner spends performing or directly supervising work on a specific job. These are job cost.
Owner business hours
Estimating, selling, invoicing, hiring, admin. These are overhead, recovered across all work — see construction overhead.
Opportunity cost
What the business gives up when the owner is on site: the estimates not written and the jobs not sold. Real, but not something to invent a dollar figure for without evidence.

The formula

Owner loaded cost per productive hour = total annual owner cost ÷ productive owner hours

Owner cost on a job = owner hours on that job × loaded owner rate

Worked example: giving owner hours a rate

An owner drawing the equivalent of $45/hour across 2,400 paid hours, 900 of which go to estimating, sales and admin rather than field work, with payroll taxes, workers' compensation, benefits and other employer costs applied:

  • Total annual cost of the owner: $138,840.00
  • Field (productive) hours: 1500
  • Loaded cost per owner field hour: $92.56

Note what the split does: the 900 business hours are not free either, but they belong in overhead, not on one job. Charging them to a job would overstate that job's cost as badly as omitting the field hours understates it.

What omitting your hours does to a job

A $14,000.00 job where the owner personally worked a substantial share of the hours:

  • Owner hours excluded — cost $9,000.00, profit $5,000.00, margin 35.71%
  • Owner hours costed — cost $12,400.00, profit $1,600.00, margin 11.43%

Same job, same money in the bank. The first row is not a better result — it is the same result with a cost hidden. And because the owner cannot work every job, the hidden cost shows up later as a job priced from a margin that only existed when you did the work yourself for nothing.

What rate to use

At minimum, the loaded cost of the employee who would otherwise do that work — otherwise replacing yourself with a hire instantly turns profitable jobs into losing ones. Beyond that minimum, RHACOVA does not prescribe a figure: what your time is worth depends on what it displaces, and a published average would be a guess about your business.

Common mistakes

  • Treating owner labor as profit taken early rather than as cost.
  • Charging all owner time to jobs, including sales and admin hours.
  • Using a token rate that is below what a replacement would cost.
  • Comparing a job you worked to a job the crew ran without normalising for this — it makes the crew look expensive and the estimate look accurate. See true job cost.

Quick answers

Should an owner's hours be job cost or overhead?
Field hours on a specific job are job cost. Time spent estimating, selling and running the business is overhead. Splitting them keeps both numbers honest.
What rate should I use for my own field hours?
The loaded cost of the person who would otherwise do that work, at minimum. RHACOVA does not prescribe a universal figure — it depends on what your time replaces.

Run the numbers

Total annual employer cost, burden percentage, cost per paid hour and cost per productive hour.

Open the Labor Burden Calculator

Free, no account, and the answer stays on the page.

Give owner hours a rate

Your Numbers can hold a loaded rate for owner field time, so estimates stop treating the busiest person in the company as free.

Open Your Numbers

How RHACOVA defines these terms

Every calculator, estimate and job in RHACOVA uses one set of financial definitions, and they are written down rather than implied. Read the RHACOVA methodology for the full list of definitions this article relies on.

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