How do I track labor costs by project?
The foundation is daily time tracking. Employees need to record their hours and assign them to specific projects as they work, not at the end of the week from memory. Reconstructed timesheets are notoriously inaccurate. People forget what they worked on Tuesday by Friday afternoon, and guesses become useless data.
Choose a time tracking system that works for your crew. Apps like Busybusy, ClockShark, or T-Sheets work well for field crews in Phoenix. Even paper timesheets can work if employees fill them out daily and specify which project they worked on. The method matters less than consistency and real-time accuracy.
Your accounting software needs proper setup before tracking means anything. In QuickBooks, this means enabling job costing features and creating projects that employees can code time to. Without that configuration, time data goes in but doesn’t connect to profitability reports. You end up with hours logged but no useful analysis.
Labor costs include more than just hourly wages. You need to capture fully burdened costs, which means employer payroll taxes, workers compensation insurance, health benefits, and retirement contributions. A $25/hour employee actually costs you $30-35/hour when you add these expenses. If you’re only tracking wages, your project reports will understate true labor costs by 20-30%. That’s a significant gap when you’re trying to understand which jobs actually made money.
Reconcile time entries weekly, not monthly. Compare recorded hours to payroll totals. Look for time that wasn’t assigned to a project and make sure it gets coded somewhere, even if that’s overhead or administrative. Weekly review catches errors while people still remember what happened.
Separate productive labor from non-productive time. Drive time between job sites, picking up materials, waiting on inspections. This time may or may not be billable to a specific project, but how you categorize it affects your understanding of project profitability. Some contractors allocate it proportionally across active jobs, others track it as overhead. Pick a method and stay consistent.
Train your crew on why this matters. People track time more carefully when they understand it affects job profitability and future bidding. If they think it’s just paperwork, they’ll treat it that way. Explain that accurate tracking helps you bid better and keeps jobs coming in at the right prices.
Use the data to improve estimates. After completing a few projects with accurate time tracking, compare actual labor hours to what you estimated. This feedback loop is how you get better at bidding. Without it, you’re guessing and hoping margins work out.
If setting up construction job costing feels overwhelming, that’s common. Getting the system configured correctly from the start prevents headaches later when you’re trying to pull reports that don’t exist. Proper small business bookkeeping for project-based work requires structure that most generic setups don’t include.
The goal isn’t just tracking for tracking’s sake. It’s knowing which projects made money, which lost money, and why. That insight only comes from accurate, consistent labor cost tracking tied to each job.
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