Two numbers quietly distort a lot of construction job costing: retainage that’s been earned but isn’t collectible yet, and labor costs that look cheaper on the books than they actually are. Both are common, both are fixable, and both change how a job’s true profitability looks.
Retainage: What It Is and How to Track It
Retainage (sometimes called retention) is the portion of each draw — typically 5–10% — that a customer or general contractor withholds until a project reaches substantial completion or final acceptance. It’s standard practice in construction contracts, but it has a real accounting consequence: that money has been earned, but it isn’t cash you can count on until the job closes out, sometimes months after the work itself is finished.
Why Retainage Needs Its Own Line
When retainage isn’t tracked separately, it tends to get buried inside accounts receivable or, worse, treated as if it’s already been collected when forecasting cash. A dedicated “Retainage Receivable” account per job keeps that distinction clear — you can see exactly how much is earned-but-withheld at any point, job by job.
| Line Item | Amount |
|---|---|
| Draw Invoiced | $60,000 |
| Retainage Withheld (10%) | $6,000 |
| Cash Collected | $54,000 |
| Retainage Receivable Balance | $6,000 |
That $6,000 is real and owed to the company — it just isn’t spendable yet. Tracking it separately keeps it from quietly inflating how much available cash a job appears to have, which matters directly for cash-flow forecasting.
True Labor Cost by Job (Not Just the Hourly Wage)
It’s common for job costing to use an employee’s hourly wage as their labor cost. The problem: wage is only part of what an hour of labor actually costs the company. Payroll taxes, workers’ compensation insurance, and benefits all ride along with every hour worked — and if they’re not allocated to the job, the job’s true labor cost is understated.
This fully-loaded number is often called a labor burden rate. The gap between wage and burdened cost is frequently larger than people expect.
| Cost Component | Amount per Hour |
|---|---|
| Base Hourly Wage | $28.00 |
| Payroll Taxes (approx.) | $2.80 |
| Workers’ Compensation (approx.) | $4.20 |
| Benefits / Other Burden (approx.) | $3.00 |
| True Burdened Labor Cost | $38.00 |
In this illustrative example, a job costed at the $28 wage understates true labor cost by over 25%. Multiplied across every labor hour on every job, that gap can be the difference between a job that looks profitable and one that actually is.
Burden rates vary by state, trade, and company benefit structure, so the percentages above are illustrative, not a formula to apply directly. Getting your own burden rate right is part of setting up construction job costing correctly from the start.
Both retainage and true labor cost feed directly into the kind of WIP and job costing AmpleX Consultants sets up for construction clients — and into the bigger-picture planning covered by construction fractional CFO services.
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