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October 2010
Example of liability premium:
If a contractor does $60 million in sales per year, and his liability insurance premium is $5 for
every $1,000 dollars of sales, his total liability insurance premium for the year would be
$300,000. However, probably only 25-33% of the sales figures are labor costs. The Contractor
The Contractor's premium is $300,000, and 33% of this is labor. Therefore, $100,000 is the
labor portion of the premium. If the Contractor has 100 employees and the average number of
work hours per employee per year is 2,000, then labor hours per year would be 200,000. The
labor portion of the premium, $100,000, is then divided by the total labor hours per year,
200,000, resulting in a cost of $0.50 cents per hour. If the base and vacation pay is $34.00 per
hour, the cost equals 1.47%. This is how liability premiums on the labor rate worksheet should
be calculated. Typical liability on labor is less than 2% but can be as high as 5% on rare
occasions. If the Contractor insists on more than 2%, he needs to produce their liability
premium sheets as backup.
These are the only items allowed to be factored into this rate. Pickup trucks, small tools, etc.
are not allowed. Any other needs should be considered extraordinary and must be explained
and documented completely. (Most campuses will never allow any “other” charges.)
Campus should go through the certified payroll records and spot check the base rate. Most of
the time the spot checking will show the rates to be okay, and sometimes even low. If the
Contractor has employees that they pay over scale, the Contractor could actually submit an
individual hourly rate worksheet for that employee. We allow them to bill for actual labor costs.
Time and material change order requests must use these rates. The mistake contractors often
make on these requests is billing journeyman rates for an apprentice. If campus has certified
payrolls for that time period, campus can verify it. If campus doesn't have them, request that
NOTE: The hourly labor rate worksheets may change over time as negotiated rates in union
contracts change. There may be a change in either benefit costs, base rates or both. The work
performed should be charged at the applicable rates for that time period.
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Labor Rate Worksheet Template