June 2003
Chronicle Tip: Building an Effective Labor Bonus Program

Labor is the single biggest expense item in most contracting businesses. In many cases, a job will be 85% - 90% labor. Employee efficiency and productivity are therefore essential for overall profitability, and depend on the right incentives to generate consistent results job after job.

The barriers to a well run labor bonus program are usually some or all of the following

		Difficulty tracking staff hours on a job by job and activity by activity basis
		Assessing individual performance across jobs / activities for a specified period
		Bonus programs rarely have an effective means of measuring fluctuations in employee productivity
		Having a program that everyone understands and carries the appropriate rewards
		A plan that does not require excessive time to manage / oversee

Here is how a labor bonus plan looks using Chronicle

		Labor hours are tracked by job and activity
		Staff can easily record their time in Chronicle from anywhere
		Budgets are able to be set for each job, and each activity within the job
		Bonus percentages may be set individually for each activity
		There is a cumulative record of each person's performance on every job
		Date ranges may be set to measure performance for any period of time (e.g. weeks, months)
		Most importantly, the system automatically accounts for the positives and negatives that tend to occur from job to job and across different activities
		Coming Soon!! Wage and hour data may be transferred from Chronicle to QuickBooks® to generate payroll data (paychecks and withholding)
		Benefits of using Chronicle for a labor bonus program

Benefits of using Chronicle for a labor bonus program

		Labor hours are tracked with all other job costs
		Activities may be assigned different bonus percentages (assign lower percentages to lower profit activities)
		The results are always available when needed, thereby avoiding needless and time consuming off-line computations
		Accuracy is increased and errors in recording time are easy to identify
		Staff will feel comfortable when there is a consistent plan that has objective standards
		Labor savings can amount to up to 30% (most see between 5% and 20%) when tracked and managed in Chronicle

Some things to think about when setting up a labor bonus plan

Tip # 1 - Activity Percentages
Take the percentage you allow a little lower than what you want to pay. Decide what labor percentage you want to pay for each budgeted activity (Think about starting with around 17% of each budgeted activity.) Consider allowing 10% on some activities and 20% on others.

Tip # 2 - Budgets and Estimates
Do not budget the entire estimate. Example if the job is $1,000 and you have 4 activities on it; Emergency Service, Monitoring, Pick up of Equipment and Relay/Clean, think about using this for a guideline:

1. Emergency Service: $400
2. Monitoring: $100
3. Pick Up of Equipment: $100
4. Relay and Clean: $200

Use the $ 200 left over for department or overhead hours. This keeps the warehouse clean, the trucks washed and cleaned and maintained using a little money from each job. Now when someone asks for your water damage labor rate you can give a percentage and say that includes overhead hours.

Before moving ahead . . .

		Review the bonus program with your staff and discuss:
			The basis for computation
			Frequency of payment
			Importance of performance consistency and how it impacts the bonus amount
		Commit to preparing a labor budget for every job
		Assign staff member(s) or train crew to record ALL their time in Chronicle by job / activity
		Assign a staff member to review hours entered in system for accuracy
		Set a regular time every month to review results
		Use results to improve staff evaluation / counseling program

Users corner - Easy steps for setting up a labor bonus plan in Chronicle

Chronicle Users: Please see the Chronicle Tips Series archives under Help to access links for each of the above steps.

Step 1
	1.	Set up your Employees and add wage rates
	2.	Access the Activities that have been set up at the department level
	3.	For each Activity, set up the Activity Cost Method for labor
Step 2
	1.	Add the activities to each job and budget them; using the budgeting screen in Chronicle. Use Xactimate as a guide. (If you get good you may be able to budget your jobs before you even do an Xactimate estimate.)
Step 3
	1.	Have your employees add their time to the following: Department, job and activities.
	2.	Chronicle now knows each employee hourly wage (Step 1)
	3.	Chronicle now knows what % to pay on each activity (Step 1)
	4.	Chronicle knows what has been budgeted (Step 2)
	5.	Chronicle does the math for you by activity.