Job Costing Best Practices for Construction Companies

Although job costing has recently gained traction as an essential accounting and time-tracking tool used across a variety of industries – ranging from manufacturing, transportation companies, consulting firms, and everything in between – the construction industry has enjoyed the longest “tenure” in the job costing realm, and with good reason. Construction companies deal with variations in material, labor, and overhead needs in nearly every new project. Sometimes this amounts to small differences, but more often this means major distinctions in terms of hours/types of labor required, amount of materials used, costs of overhead, and an array of other (un)predictable factors.


Although construction companies and their staffs may enjoy the dynamic nature of their work, in the end, all construction companies are seeking a peace-bestowing trifecta:

  • improved profit margins per project
  • alignment of estimates and final invoices, and 
  • the elimination of inefficiencies in materials, labor, and overhead

This is where job costing comes into play. Job costing is the process of accurately measuring the overall costs of each individual project to clarify actual profit margins per project, track projects in real time, make adjustments/address inefficiencies as needed, and determine which project types are consistently most profitable. Job costing is a complex process, but once honed, it empowers construction companies to bid on new contracts with full confidence in their data, their estimates, and their ability to track and manage the progress of projects in real time.

If you’re late to our series on job costing versus process costing, please check out our recent articles on “Why Accurate Job Costing Is So Important” and “Understanding the Difference Between Job Costing and Process Costing.” These articles will give you a thorough breakdown of job costing and process costing as general practices. For now, we’ll dive into how your job costing process can be majorly improved in the construction industry.

Best Practices for the Construction Industry

An ideal job costing process closely analyzes the details and nuances embedded in each individual project. By mining each project – whether already completed, in-progress, or forthcoming - for data and insights, you stand to walk away with a deeper understanding of how to use accounting and time-tracking to keep your projects consistently profitable, on budget and on time. Here are the steps we recommend:

  • Choose your process and stick with it: For the vast majority of construction companies, job costing is the preferable accounting and time-tracking approach over process costing, unless you are consistently or exclusively producing one uniform and predictable project type.
  • Time-Tracking is Your Biggest Ally: Not only does digital time-tracking ensure that hours of labor are documented in a single consolidated environment, but it also grants you the ability to monitor and address expected vs. actual hours, employees with multiple roles, and provides real-time insights regarding labor allocation and efficiency.
  • Monitor Estimate vs. Invoice Discrepancies – Even if change orders are part of the project “equation” or you’re approved to bill your customer for unexpected or supplemental expenses, monitoring your billing allows you to improve cash flow, generate accurate invoices, and limit gaps between projected and actual costs for clients.
  • Always Account for Overhead Costs from the Start: Whether it’s professional/legal services, temporary office spaces, rentals, taxes, or otherwise, overhead fees impact every project you do, so it’s essential to build that expected percentage or overall cost into your initial estimate(s).
  • Never Overlook or Underestimate Labor Costs (All Facets) – In the vast majority of construction projects, labor qualifies as the most expensive cost, especially as contractors, crews, or subcontractors compound for bigger projects. Remember to always incorporate expected costs for overtime, insurance, and other possible fees, and monitor what you can in real time to make modifications as needed.

How WorkForce PayHub Can Help

Each of the best practices we’ve covered may be independently manageable “in house,” but as projects and variables expand over time, many construction companies turn to us to help them streamline their job costing process. We offer the guidance, personnel, software, and experience to turn what feels like an accounting and time-tracking quagmire into a streamlined, comprehensible process that helps you achieve your bottom line: eliminated inefficiencies, improved profit margins, and alignment between estimates and invoices. Our Human Capital Management Solutions and Time and Labor Management Solutions address the full spectrum of needs for most construction companies: increasing productivity, providing valuable data, centralizing/digitizing payroll, and providing performance metrics that give you a clear picture of how to boost productivity and achieve your project goals.

Please contact us today to discuss how we can perform accurate and informative job costing through your payroll/HCM software setup.

Eric Jones
Understanding the Difference Between Job Costing and Process Costing How to Calculate the True Costs of Employees for Hourly Billables
We're Ready To Talk Payroll