Overtime (OT) for Construction Works

Dear Readers,

Construction Industry is the major employment creator for the (manpower) workforce. It is directly linked with country growth and infrastructures development. To meet the project schedule, extended working hours are the integral part of construction activities. 

If work time exceeds the fixed hours, employees be entitled to overtime payment rules for such hours or part of hour. This is paid at a higher rate than regular working hours. Also an Employee can work different work shifts according to their working hours, if available. But, the essential point is that employee need to be productive and complete their tasks then only overtime will be considered.

There are several laws in India which govern the maximum overtime hours allowed in India and also provide for an overtime calculation formula in India. Based on the industry one works for, the overtime payment rules vary. Some workplace may be governed by the central laws while the other might be a subject of state laws. Knowing employee rights may empower the working class.

In Construction Industry practice 11 hours daily work time inclusive of overtime and excluding lunch break. a person is entitled to be paid overtime wages twice his ordinary rate of wages in case he/ she is required to work for more than 9 hours a day or more than 48 hours in a week. The wages mentioned here is equivalent to the basic wages along with allowances, but does not include any bonus or other overtime wages. In case a worker is paid on a ‘piece rate’ basis, time rate will be calculated on the basis of previous month and the amount of overtime wages will be calculated accordingly. 

In any case, the overtime payment rules do not regard the gross salary. But if there is no statutory obligation and the employer wishes to reward the hard-working employees voluntarily, overtime payment rules in India do not restrict the same. In such a case, whether overtime is paid on basic or gross in India is the employer’s choice.

Rate Analysis for Construction Works (Part-2)

 Dear Readers,

This is continuation of my previous post. 

Basic Components of Rate Analysis is L+M+P and OHP shall be added further. 

        L = Labour

        M = Materials 

        P = Plant & Machinery

        OHP = Over Head & Profit

Let us discuss about calculation of Labour cost. Labour cost always denoted in the name of Man Day cost " MD Cost". Man Day Costs consists of ABW, Over time charges and Terminal Benefits. While calculating labour wages, we should always consider the terminal benefits. It is directly linked with basic wage.

        For Labour wages, it is always preferring to consider minimum wages declared by state government or central government, which is followed by the particular project.

        Generally, government declare / revise the minimum wages every six months. 

  Labour wages are categorized as follows

     High Skilled (Millwright Fitter, Fabricator, Foreman, IBR Welder etc.,)

     Skilled (Fitter, Carpenter, Mason, Grinder, Gas Cutter, Rigger etc.,)

      Semi-Skilled (Khalasi, Driller, Asst. Fitter etc.,)

      Un Skilled (Helper, Male Coolie etc.,)

        Generally, wage hike will be 3% subject to inflection and other government factors

Based on the above factors wages to be considered in rate analysis. (If the duration is more than six months, take the average wages consider the wage revision)

If the particular work duration is 20 months, then it may take two revisions

Consider 3% revision on basic wages every time and take the average of 3 rates.

If the privilege rates are higher than government minimum wages, then you may consider market rate and workout the average.

From the above example it is noticed that present rate of High skilled rate is Rs. 338.96, However, for rate analysis purpose we may consider Rs.349.23.

To determine the labor cost, it is essential to understand the Average Basic Wages (ABW) and Terminal Benefits

To know more about ABW Click Here.

To Know more about Terminal Benefits, Click Here

Rate Analysis for Construction Works (Part-1)

Dear Readers,

Wish You a Happy Republic Day 2025.

Rate analysis plays a crucial role in the construction industry and is considered an art. Preparing a rate analysis is not as simple as collecting quotations from other agencies, which is the usual practice in the industry. If you are experienced with similar projects, you may be aware of the pitfalls; however, if you lack familiarity, others may mislead you, which could erode your profit margin.

What is mean by Rate Analysis? What is the purpose and What are the advantages? Let us Discuss.

 

To establish the price of a specific item, the elements influencing its cost are meticulously examined before setting its final rate. This procedure for ascertaining an item's pricing is known as rate analysis.

It is based on scientific assessment of inputs of Labour, Material, Consumables, Plant and Machinery in various items of work normally encountered in projects.

The rate of particular item of work depends on the following:

        Specifications of works and material about their quality, proportion and constructional operation method.

        Quantity of materials and their costs.

        Cost of labours and their wages.

        Operation Cost & Hire charges of P&M

        Location of site of work and the distances from source and conveyance charges.

        Overhead and establishment charges

        Profit

Rate Analysis- Purpose

        To work out the actual cost of per unit of the items.

        To work out the economical use of materials and processes in completing the particulars item.

        To work out the cost of extra items which are not provided in the contract bond, but are to be done as per the directions of the department.

        To revise the schedule of rates due to increase in the cost of material and labour or due to change in technique.

        The rates of Materials and Labour are changing from place to place, therefore the rates of different items of work also changes from place to place

        Rate Analysis are required before commencement of Work

        It is a guide to cross check with actuals during execution. 

Rate Analysis- Advantages

        

To assess various quantities of Labour, materials, machinery, money and to effect economy by using alternatives and to optimize the resources

        To compare the costs with sanctioned amount and to take action for regularization of excess/ less cost

        To assess the rates payable for deviations, extra items of work to the sub-contractor

        To work out the budget and cash flows at various stages of the work and arranging interim/ final payments

        To detect irrational rates quoted by sub-contractors

        To serve as basic data in case of disputes that may arise at a later stage

Basic Requirements for Rate Analysis

        Scope of Subcontract

        Brief scope of Work

        Duration of Work

        Minimum Wages of Labour

        Rate and frequency of labour wage revision 

        Proportionate element of terminal benefits such as bonus, gratuity

        Overtime requirement

        ABW (Average Basic Wages) and MD (Man day) rate 

        Cost of Materials & Consumables including its wastages

        Hire Charges of Plant & Machinery

        Operating Cost of Plant & Machinery

        Productivity of resources

Special Points to be considered for Rate Analysis. Following points are considered while preparing Rate analysis:

        Landing Cost of Material:

                Cost of materials includes the supplier’s price, transportation, loading/ unloading, haulage to site, handling for incorporation into the work, wastages/breakage/pilferage, storage charges, deterioration on storage, returning of empty bags/ cases and taxes and other incidentals.

        Specification of Materials:

                Generally, the basic materials shall conform to the relevant Indian standards. 

                Where no such standards exist the relevant British/ American standards in so far as they are applicable could be followed.

         Existing Labour Union Activities:

                Terminal benefits of workmen

                Privilege wages for workmen Vs Minimum Wages

        Scope of Statutory Compliance

                PF Compliance

                Insurance policy

        Percentage profits & overhead charges:

                Sub Contractor profit normally varies from 5 to 10%. 

                Overheads vary from 3 to 7 ½%. 

                The total element of overheads and profit shall not normally exceed 17 ½% on estimated rates. This should be restricted to 10% if paid bills/ days work is considered.

Will be Continued....

Terminal Benefits of Construction Labour

Dear Readers,

Even though, the construction industry is the second largest employer in India, after agriculture. The casual nature of jobs in the unorganized construction sector can lead to poor working conditions, low salaries, and less job security. Construction projects are often located in remote sites, can be unpredictable, and there is a high chance of encountering unforeseen problems like weather. 

Terminal benefits are final entitlements of an employee upon termination of an employment contract. It is nothing but Money paid to an employee whose employment has been terminated because of a closedown or downsizing. 

Below Table shows the industrial practice of Terminal benefits for construction Workmen. A contingency has been included, which will be tailored to your requirements.

Please note that, if you leave the company on your own accord before the expiry of the notice period, you will not be eligible for retrenchment compensation as per the retrenchment notice already issued.

For costing, estimating, or rate analysis purposes, terminal benefit calculations are crucial to avoid significant crises. Calculating necessary cost provisions periodically and maintaining them can prevent financial crises and last-minute surprises.

For More Details about Basic Wages Click ABW

For More Details about Man Day & Man Hour Click Here

For More Details about Labour Welfare Click Here

For More Detail about Labour Law in India Click Here

Average Basic Wages (ABW)

Dear Readers,

ABW means Average Basic Wages. ABW is playing vital role in costing and rate analysis of construction works.

To find an ABW we must know the Gang Composition. Gang means to execute the particular activity we need a workforce which comprise a set of manpower with different categories based on their skills.

Obviously, unit rate will not be same for each workman in the gang, since they are having different skills.

ABW is equal to Average Product of workmen and their wages.

ABW = {[Sum of (Manpower X Wages)] / No. Manpower}

Gang Composition is playing one of the important vital roles for rate analysis to get an optimum ABW. Gang Composition is directly related to productivity. A well-organized work, less labour is required.

ABW shall be calculated in two methods. One is if you know the gang composition and another one is without gang composition.

Following type can be used when we are identified a gang

Following type can be used when we could not identify a gang

Both Table shows different ABW for the same example. This is due to difference between Actual and Approximate. First table , we identified the gang composition. Second table is based on the approximate.

Man Day and Man Hour

Dear Readers,

Man Day (MD) is used in construction industry to estimate the manpower and costing purpose

MD refers Man Day; it is a unit of measurement for workforce. An industrial unit of production equal to the work one person can produce in a day.

Other Unit of Measurements are Man Hour and Man Month are commonly used in construction industry for the similar works depends upon the nature of work. It is used for estimation of the total amount of uninterrupted labour required to perform a task.

Man-hours exclude the breaks that people generally require from work, e.g. for rest, eating, and other bodily functions. They count only pure labour. Managers count the man-hours and add break time to estimate the amount of time a task will actually take to complete.

Eight Hour working is called One shift and one person working one shift (8 Hours) is called one-man day. Decide what constitutes a "man day." In most cases, a "man day" is eight hours, although that is up to a company to decide.

If the work gang comprises 10 workmen and working one shift is equal to 10 MD and if the gang works 6 days then it is 60MD.

In construction industry over time is exists. It is subject to the nature of job. Normally 3 Hours overtime is regular in all sites. However, benefits will not be applicable on overtime wages.

During MD rate calculations terminal benefits are subject to the duration and local site environment

MD rate arrives from

 ABW (Average Basic Wages)

 Over Time Wages

 PF & Admin. Charges of employer portion

 Terminal benefits

Reconciliation of Materials (Part-2)

Dear Readers,
This is continuation of previous post

• Wastage / Savings

o  Theoretical Consumption – Actual Consumption

• Percentage of wastage

o  Wastage / Theoretical consumption X 100

• Theoretical Consumption

o  Billable

•  Claimed from clients

•  Work in progress

o  Non Billable

•  Temporary structure

•  Enabling works

•  Due to drawing revision not useable

•  Laps, Chairs and Spacers

•  Splices and Lifting lugs

Actual Consumption = Total Receipt – Total Issue

Receipt

o  Purchases thru’ region / Head Office

o  Local purchases

o  Receipts from other sites

o  Receipts from other Agencies

o  Clients supply

Issues and Stocks

o  Physical stock (Including Cut Bits (Useable))

o  Issued to other sites

o  Issued to clients

o  Issued on chargeable basis

•  Interpretation

o  If Result is (- )ve means it is wastage

o  If Result is (+)ve means Savings

o  Results shall be compare with contractual limits

•Advantage of Material Reconciliation

o  To Minimize the wastage

o  Salvage of wastage / Scraps

o  For better planning on Material procurement

o  It is a Contractual Obligation

Reconciliation of Materials (Part-1)

Dear Readers,

Wish You a Happy Engineers Day

Materials reconciliation is playing vital role in construction industry. It is directly linked with contractual related. If we are not taken properly it will have a huge impact on project cost. However based on the proper documents and proper method we can come out this difficulties. Considering the contents it will be blocked in two or three parts.

•       What is meant by reconcile?

o   Getting two things to correspond / agree

•       Reconciliation

o   Reconciliation is the process of ensuring that any two related values agree after taking in to consideration the data relating to possible variance

o   Theoretically we can reconcile any two values whose relationship can be expressed in the form of a mathematical equation.

o   For Material reconciliation, it is the process of comparing the standard data with actual data after considering data relating to variances. (Difference between Theoretical Consumption Vs Actual Consumption)

o   Result of reconcile is either wastage or Savings

•       Basic Components for Reconciliation

o   Raw Material Receipt

o   Raw Material Stock

o   Raw Material Issue

o   Consumption of Material

Will be Continued....