Friday, April 23, 2010

BASICS OF LABOUR RATES

DEVELOPING LABOUR RATES (For Estimation)
(For UAE Construction Industry)
Base Wages
The base wage is the amount that will go directly to the Labour. The source of these wage structures can be found in Company Payrolls or from labor contracts. Base wages are usually calculated on a per hour basis. However, it can also be a breakdown of weekly or monthly base salary prorated to a daily or hourly rate. The reason for an hourly breakdown is that estimates are usually based upon the amount of work hours to complete. Therefore, the labour cost rates need to be developed on a comparable basis.

Calculation of Base Wage

Here I am assuming a Construction Company Named as “XXX Contracting” (I am not sure about the existence of such a company in UAE, so I am adding a comment here that, “The Names & Figures which I am referring here is only indicative and not in relation with any existing).   Table 1.1 shows a Snapshot summary for Workers payroll of our “XXX Contracting” from the Table 1.1 we can find out that the Average wages of a skilled worker of our Company is AED 4.05/ Hour and for unskilled worker is AED 2.50 / Hour.

Monthly Wages

Here we are calculating the Average Standard monthly Wages for both Skilled & unskilled
.
  • Average Monthly Wages = Wages / Hour X Standard Working Hours/Day (8 Hours/                    Day) X Days in a Month (30 Days)
  • So, for Skilled Worker Average Monthly Wage = AED 4.05 X 8 Hours X 30 Days   = AED 972.00 / Month.
  • And for Un-Skilled Worker Average Monthly Wage = AED 2.50 X 8 Hours X 30 Days   = AED 600.00 / Month.

Finding Escalation Component in Labour wages

Provision for Salary Increment.

Salary Increment for the Construction industry Labour!!!! A rarely happen phenomena in the region, but our XXX Contracting is having a very social HR Policy that “Every one who is working for our company should be appreciated, that means Appreciation in terms of Money”. XXX Contracting will review their workers salary annually and in present situation every year the company is giving 10 % increment on Basic Wages. So that, Next years Average Hourly Wages for Skilled Worker = 4.05 + 0.40 =AED 4.45 /Hr. and for unskilled worker = 2.50 + .25 = AED 2.75 /Hr.

If we are estimating a Project that with a Planned Duration of 15 months, definitely it is necessary to take the future Increment in our account, so we can take the Average Rate as our Basic Wages.
I.e.,
  • Basic Wages for Skilled Worker     = (4.45+4.05)/2 = AED 4.25 /Hr.
  • Basic Wages for Unskilled Worker = (2.50+2.75)/2 = AED 2.65 /Hr.

Paid time off (PTO)

Most employees have additional benefits of time off for local and national holidays, vacation, and sick time. Therefore, in developing a unit cost for labor, a factor is added to increase the estimated and booked cost per hour worked each week to cover PTO.  Table 1.1 shows the calculation of PTO for normal practice.

  • Paid Time Off Factor (PTO Factor)   = Total Paid Hours (in a year) / Total productive Hours (in a year)

Applicable Direct Wages/ Hour

  • Applicable Direct Wages / Hour (ADW/Hr) = Basic Wages/ Hour X PTO Factor

     i.e,
  • ADW/Hr for Skilled Labour        =     AED 4.25 X 1.36 = AED 5.78 / Hour
  • ADW/Hr for Unskilled Labour     =    AED 2.65 X 1.36 = AED 3.40 / Hour

Fixed Allowances

Apart from the Basic Wages the XXX Contracting is providing the following Benefits/ Allowances to their Labours.
  • Sharing Camp Accommodation.
  • Medical Insurance coverage
  • A fixed Amount/ Day as Food Allowance.
  • Return Air Ticket in Economy Class to Home Nation

Development of Hourly Rate for Accommodation Allowance.

XXX Contracting leased a Labour Accommodation, which having 200 rooms and a Maximum capacity of 1,200.00 persons to accommodate.  Table 1.3 is showing the calculations for Accommodation Allowance.
  • Annual Rent for this building is AED 2.5 Million ( including Charges)
  • Spent AED 450,000.00 for Furnishing each rooms with Basic furniture.
  • Monthly Utility Charges are an average of AED 70,000 /Month. 



Development of Hourly Rate for Medical Insurance Allowance.

XXX Contracting is providing Group Medical Insurance for all the workers and company is paying AED 1,000.00 as Annual Insurance Premium for each Worker. Table 1.4 is showing the calculations for Accommodation Allowance. 

Development of Hourly Rate for Air Ticket Allowance.

In every two years XXX Contracting is giving Economy Class Return Air Ticket for workers. All the Workers employed in the company are from Indian subcontinent & from the Past records we found the Average Charge for return Air ticket to Indian Subcontinent is AED 1,800.00 (Considering Both Peak & Off peak rates to Various Destinations in Indian Sub Continent). Table 1.5 is showing the calculations for Accommodation Allowance. 


Development of Hourly Rate for Food Allowance.

Apart from the Basic Wages company is paying AED 10.00/ Day as Food allowance to their workers. Company is paying the Food allowance for all days in a year excluding the vacation period, which means food allowance is applicable to 335 Days (365 – 30 days Paid vacation) in a year. Table 1.6 is showing the calculations for Accommodation Allowance. 




Development of Hourly Rate for Workers End of service Benefits.

As per the UAE labour Law every worker who worked more than one year with a company is eligible for Gratuity at end of their service. Our XXX Contracting very strictly follows all the Laws with in the country.

How the Gratuity is calculated.

Period of First Five year of Employment 21 Days Basic Wages /Annum and 30 Days wages/ Annum for all the additional year after five, but limited to a maximum of 24 months basic wages. Basic Wages means the basic Wage which worker drawn in Last month of his employment.

From the past records of XXX Contracting, we found that the average employment period of a worker with the company is 9 Years.  And for getting the best calculation results we are assuming all the workers in payroll already completed 4 years with the company and all of them will leave the company after 5 years.

Development of Basic Wages after 5 years as per Companies current HR Policy. Table 1.7 is showing the calculation for Basic Wages at time of contract Termination & Table 1.8 is showing Rate / Hour for End of service benefit allowance.

Development of Hourly Rate for Residence Visa & recruitment Expenses.

Unlike some other companies our XXX Contracting is not charging any single fils from our workers for their Residence Visa expenses, Medical Fitness examination or any other legal fees. From the company records we found that the company spending an Average amount of AED 3,500.00 per worker for their Visa expenses. Table 1.9 is showing the calculations for Development of hourly rate for Visa Expenses. 

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Conclusion




Tail




3 comments:

  1. Good job my friend.
    Very detailed study of Labor Cost.
    How about the government fees' that the contractor has to pay?
    fayazdin@yahoo.com

    ReplyDelete
  2. can u please upload the calculation to arrive at basic rates for a boq item....

    ReplyDelete