How to Calculate Labour Costs – (Part 1) A Problem of Knowledge

I started out in construction services. Now, construction (and its services variation especially) can be a difficult industry to be a manager in. It seems that every other employee is a jailhouse lawyer. And every government body in existence is convinced that contractors are thieves and slave traders. As a result, every manager needs to become expert in any law regarding employment. And in how to calculate labour costs — that’s labor for you folks south of the border.

Let’s be gentle and say that I was shocked when I left that industry and entered the IT industry.

You see the IT industry is also a services industry. In theory, it should have the same issues as construction. Or at least most of them. Unless you drop a printer on your foot, safety isn’t a big concern. But labor costs and employment standards and so forth should be at the forefront of every manager’s concerns. Knowing the legal environment you function in is a major element in any manager’s role.

But what I found was a shock.

Information services managers didn’t seem to be people focused at all. Many of them barely knew the privacy or taxation rules that affected their industry. As for employment standards and labour costs — they hadn’t even bothered to read the free pamphlets.

In the many years that have passed since my first sad introduction to big business, the situation has gotten worse. More and more legislation has been passed. Laws have become contradictory and more complex. Regulations that were once straightforward and clear have been obscured by political agendas. Organizations are no longer governed by a single set of laws but by a mix of provincial, national and extra-national laws. Information flows from one jurisdiction to another without appropriate revision. And advice from supposed professionals has become less and less reliable.

Of course, a project manager cannot be allowed the luxury of ignorance when it comes to labour issues. Yes, it can cause problems with managing the project. After all if you don’t know the costs you are cutting one third of your ability to manage out of the equation.

But it’s much worse than that. Not knowing how to calculate labour costs can easily lead you to miscalculating pay rates (and very frequently does). This can ensure that the quality of person you find is much lower than you really expected or need. And it can lead you to make the wrong cost decisions. It can also lead you to expose your company to risks you might not have expected. These can range from lawsuits to major government audits and worse. Like Microsoft, you might be surprised one day to find yourself employing hundreds more people than you thought.

Over the next few articles, I’m going to try to do my bit to overcome a little of that rising tide of ignorance.

In the next article, I’m going to focus on defining the types of employment. In later articles, I’ll discuss how to calculate labor costs quickly, how to calculate labour costs the slow way, and then go on to discuss some of the myths about employment that I’ve encountered. Or perhaps I should say misapplication of jurisdiction rather than myth.

Along that line of discussion, I will occasionally reference other jurisdictions. I will also occasionally reference other industries. In fact, most of what I have to say applies equally to other industries. But primarily, I’m going to focus on Ontario and the so-called IT (or Information Technology) industry.

In any case, I hope you’ll join me for the discussion. Feel free to comment. I’ll watch the comments and respond.