What About Insurance?
MRF Construction’s treasurer, Carolin Fast, was putting insurance into overhead, but since insurance costs, especially liability, have gone up dramatically, she’s decided she will probably start putting it above the line. Alan Hanbury, treasurer and co-owner of House of Hanbury, Newington, Conn., says to look at it this way: “Workers’ comp; health, truck and auto, and contents insurance; and contractor’s liability — all or a portion should end up as direct costs. They’re basically in a knapsack that field employees carry with them all the time.” As such, they should go above the line. But health insurance for officers, for example, should go below the line in overhead.
Hanbury takes an employee’s exact health insurance, divides by the number of hours they work per month, and his software automatically assigns that amount of dollars directly into labor burden. “[Total] accuracy isn’t so important as long as clients are paying their fair share of the costs.”
Hanbury does it this way so he doesn’t have to redo his budget often. “If I hire five people tomorrow, my overhead doesn’t go up because all my expenses are in the knapsack that comes with the employee. If I [were to cover] those expenses in overhead, each time I hire or fire I have to redo my entire budget on those [insurances mentioned above]. Most people won’t do their budget once. To cover overhead, you’d have to raise prices. Doing it this way doesn’t affect pricing.”