What Are On-Costs in Construction Estimating?
On-costs are the additional employment expenses that sit on top of a worker’s base hourly wage — superannuation, workers compensation insurance, annual and personal leave, public holidays, allowances and payroll tax — all of which an employer funds whether or not they appear on an invoice. In construction estimating, on-costs are added to the base wage to build an all-in labour rate, because pricing a job on the bare wage alone will always under-recover the true cost of putting a worker on site.
Key takeaways
- On-costs are the real employment expenses beyond base wage — super, workers comp, leave, allowances and payroll tax — that a business carries to keep a worker employed.
- On-costs typically add somewhere between 25 and 45 per cent on top of the base wage, though the exact figure depends on the award, state and business.
- Leaving on-costs out of a labour rate is one of the most common ways a construction business quietly erodes its margin.
- An all-in labour rate combines base wage plus on-costs plus a margin allowance, so every hour charged actually covers what that hour costs the business.
- On-costs should be reviewed regularly, since superannuation guarantee rates, insurance premiums and award rates change over time.
What Counts as an On-Cost
On-costs cover every mandatory or standard employment expense that sits above the base wage rate — the costs an employer carries for every hour an employee is on the books, whether or not that hour ends up billed to a client.
- Superannuation guarantee contributions
- Workers compensation insurance premiums
- Annual leave, personal or sick leave and leave loading
- Public holidays and rostered days off
- Award allowances — travel, tool, site and industry allowances
- Payroll tax, where the business sits above the relevant state threshold
- Apprentice or trainee subsidy adjustments, where applicable
Why On-Costs Get Left Out of Rates
On-costs are easy to underestimate because most never appear on a single invoice or timesheet — they show up in payroll reports, insurance renewals and BAS statements instead, well away from the day-to-day pricing conversation. A business owner pricing a job from memory, using last year’s wage figure, will naturally reach for the number seen most often: the base hourly wage.
The result is a labour rate that looks competitive on a quote but does not actually cover what that labour costs to put on site. Over enough jobs, that gap compounds into a business that is busy but not profitable.
A quick worked example
A tradesperson on a base wage of 45 dollars an hour can easily cost an employer 60 to 65 dollars an hour once superannuation, workers compensation, leave and allowances are added — a gap that has to be recovered in the rate charged out, not absorbed as a hidden cost.
Building On-Costs Into an All-In Labour Rate
An all-in labour rate is built by starting with the base wage, adding every applicable on-cost as a percentage or dollar loading, then adding a margin on top for overheads and profit. Getting this build-up right means every rate in the rates library reflects the true cost of an hour of labour, not just the wage line on a payslip.
| Component | Illustrative amount |
|---|---|
| Base hourly wage | $45.00 |
| Superannuation guarantee | + $5.18 |
| Workers compensation | + $3.60 |
| Leave loading and public holidays | + $4.50 |
| Award allowances | + $2.50 |
| All-in labour cost, before margin | $60.78 |
Keeping On-Costs Current
On-costs are not a set-and-forget figure — superannuation guarantee percentages increase over time, workers compensation premiums are reviewed annually, and award allowances are indexed, so a rate built up two years ago is very likely under-recovering today.
MTH’s editable rates library lets you build labour rates with on-costs as a distinct, updatable component, so when super or insurance premiums change, the rate can be updated once and applied consistently across every future estimate rather than recalculated from scratch each time.
Frequently asked questions
What is the difference between on-costs and overheads?
On-costs are the direct employment expenses tied to a specific worker — superannuation, workers comp, leave and allowances. Overheads are the broader business running costs — rent, insurance, vehicles, admin — that get spread across all jobs rather than tied to one worker’s wage.
How much do on-costs typically add to a base wage?
On-costs commonly add somewhere between 25 and 45 per cent on top of the base wage, though the exact figure depends on the applicable award, state-based workers compensation rates, payroll tax thresholds and the specific allowances that apply.
Do on-costs include superannuation?
Yes. Superannuation guarantee contributions are one of the largest and most consistent on-costs, and they need to be included in any all-in labour rate calculation regardless of how the base wage itself is structured.
Why does my labour rate need to include on-costs if I already pay super separately?
Paying super separately through payroll does not make it disappear from the cost of that hour of labour — it still has to be recovered somewhere. If it is left out of the rate charged to a client, the business absorbs it as a silent loss on every job.
Do on-costs apply to subcontractors as well as employees?
Traditional on-costs like superannuation and leave generally apply to employees, not subcontractors invoicing as their own business. A subcontractor’s quoted rate still needs to cover their equivalent costs, so the same all-in thinking applies when comparing subcontractor rates to employee labour rates.
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