What Are the Overhead Costs in Construction?

Home Office Overhead Costs

• A construction company with more than one job typically uses a home office for managing administration. Unless a separate general and administrative pool exists, facility costs for this office, such as rent and utilities, are overhead costs allocatable to all jobs. Subcontracter costs such as payroll services or outside legal or auditing services used by the home office also fall in the overhead pool.
  
  

Field Office Expenses

• While the materials and laborers to perform work make up direct costs of a construction job, field offices and their associated operating expenses comprise the indirect costs. Temporary facilities and administrative items dedicated solely to the specific job, such as cell phones and fax machines on location, fall into this overhead category. Other field office overhead items include work vehicle expenses and equipment depreciation, worker uniforms and employee welfare items such as water coolers or free coffee.
  
  

Indirect Salaries

• When a manager controls multiple jobs, you may track his salary as a direct cost by allocating his costs to both jobs. If managers control multiple jobs at one time, you may decide to consider their cost as overhead. Regardless of the manner chosen, consistency is critical. If field management salaries charge to overhead for one contract, the same should apply to all similar situations. Indirect salaries of home office employees also contribute to the overhead expense pool.
  
  

Taxes, Bonds and Insurance

• Payroll taxes such as income taxes, unemployment taxes and Medicare contributions fall into the category of overhead expenses. These fixed overhead costs are incurred for every hour of labor paid. If you provide health insurance for employees, the amount should also be tracked in your overhead pool. The company's general liability insurance cost, cost paid to bond construction jobs and the amounts paid to maintain workman's compensation insurance contribute to the total overhead amount. If you contribute to a pension plan for your employees, the amount needs to be tracked as an overhead expense.