How to Determine the Overhead in Construction

Overhead in construction usually runs 13 percent to 20 percent of costs.

Overhead in the construction industry is considered the expenses you have to pay whether or not you have a project. They include office space and equipment, salaries for office workers, vehicles and sales. Generally, overhead expenses are everything beyond materials, labor and job expenditures. Overhead can vary depending on the type of contracting you are doing and the size of your company. Larger contractors generally have a lower overhead percentage than do smaller contractors and, as a rule, overhead usually runs about 13 percent to 20 percent.

Things You'll Need

• Calculator
• Accurate business figures from a specific period

Instructions

1. 

   Overhead expenses are those that you pay whether or not you have a project.

   Determine all of your overhead expenses. These generally include salaries and benefits for office employees, vehicles and their maintenance, advertising and promotion, as well as typical office expenses such as postage, computers, telephones, Internet access, utilities and supplies. Additionally, they include maintenance on office equipment, accounting and legal costs, taxes and licenses, subscriptions, dues, charitable contributions, travel expenses, and company insurance not related to a job or project. Other items such as depreciation, costs associated with estimating and bidding jobs, bad debts and collection costs and educational expenses for yourself or employees are also included.

2. 

   Base your calculations on a specific period of time.

   Select a period of time, perhaps the year's end, when you have reliable figures for your business. The reliability of the numbers cannot be overemphasized. Keeping accurate records and using accurate numbers when figuring overhead will serve you well.

3. 

   Add your business income for the selected period of time.

   Add together all of the business income you generated during the selected time period, whether it is a month, a quarter or a year. What you need here is an accurate and reliable total for the business you conducted in that period.

4. 

   Total all of your job-related expenses.

   Find the totals for all of the job-related expenses such as the materials you purchased, labor costs including wages, fringe benefits, unemployment benefits, FICA and workman's compensation and, of course, profit. The more accurate your figures, the more accurately you will be able to determine your true overhead. In this example, overhead is considered a percentage of sales rather than as a percentage of costs.

5. 

   Deduct the job-related costs from the total sales to arrive at your overhead figure.

   Subtract the total of the non-overhead costs -- labor, materials and job expenses -- from the total sales. If you have used accurate figures, you will have arrived at a relatively precise overhead figure. It is important to remember that there is no "correct" percentage. The 13 percent to 20 percent range on overhead is merely a guideline. If your figure is well above 20 percent or well below 13 percent, you may need to refigure the result after reviewing your numbers to make certain you have included everything.

References

• EC&M: Overhead and Profit Part 1

Resources

• Construction Guy: Eichleay Formula Calculations