Job costing collects every cost of a specific job, project or contract under its own code: materials bought or issued from stock, hours booked by staff at a fully loaded labour rate, subcontractors and hire, plus a share of overheads through an absorption rate. Comparing that total with the price charged, and with the original estimate, shows which jobs actually make money and why the others do not. It is the core management tool for builders, installers, engineers, agencies, consultants and any business that quotes for one off work.

What is job costing and which businesses need it?

Most bookkeeping systems report profit by month and by nominal code: total materials, total wages, total sales. That tells an owner whether the business made money overall but not which customers, job types or estimators made or lost it. Job costing adds a second dimension, so each cost is recorded against the job that caused it as well as against its nominal code.

It suits any business where each piece of work is different and priced separately: construction and fit out, joinery and shopfitting, electrical and plumbing contracting, bespoke manufacturing, marketing and design agencies, software projects, surveying and engineering consultancies, and accountancy or legal practices that track time by client. Businesses selling identical products in volume normally use product or process costing instead, although the overhead logic is the same.

How do you capture costs against each job?

  • Job codes. Give every job a unique reference when the quote is accepted and use it on purchase orders, supplier invoices, timesheets, expense claims and sales invoices. Most cloud accounting packages handle this through projects, tracking categories or cost centres.
  • Materials. Code supplier invoices to the job when goods are bought specifically for it. Where materials come from a central store, record issues to the job and returns from it, otherwise unused materials stay on the job and overstate its cost.
  • Labour. Staff book hours to job codes daily, not from memory at the end of the week. Separate non chargeable time (training, travel between jobs, rework, idle time) into its own codes so it is visible rather than hidden in job costs.
  • Subcontractors and hire. Code subcontractor invoices, plant and skip hire and specialist services directly. For construction work, deductions under the Construction Industry Scheme affect cash, not the cost of the job.
  • Overheads. Add these through a predetermined rate per hour booked, explained in overhead absorption rates.

How do you build a labour rate that reflects the true cost?

The hourly wage understates what an hour of an employee’s time costs. A loaded rate adds employer costs and divides by productive hours, not paid hours.

  • Employer National Insurance. For 2026 to 2027, HMRC’s rates and thresholds for employers give a secondary threshold of £5,000 a year and an employer rate of 15% above it for most category letters.
  • Pension. Under automatic enrolment the minimum employer contribution is 3% of qualifying earnings, which in most schemes are earnings between £6,240 and £50,270 a year, according to GOV.UK.
  • Paid leave. Almost all workers are entitled to 5.6 weeks’ paid holiday a year, so those hours are paid but cannot be booked to jobs.
  • Non productive time. Travel, training, quoting, rework and waiting for materials reduce chargeable hours further.

Illustration only. A fitter earns £32,000 for a 37.5 hour week. Employer National Insurance is 15% of (£32,000 less £5,000), which is £4,050. The minimum employer pension is 3% of (£32,000 less £6,240), which is £772.80. Total employment cost is £36,822.80. Paid hours are 52 × 37.5 = 1,950; deducting 5.6 weeks of leave (210 hours) leaves 1,740; if 80% of those are booked to jobs, productive hours are 1,392. The loaded cost is £36,822.80 divided by 1,392, about £26.45 an hour, against a basic wage of about £16.41 an hour. Pricing jobs on the basic wage would understate labour cost by over a third.

What does a job cost sheet look like?

Illustration only. A kitchen refit was quoted at £12,000 plus VAT, estimating 100 hours of labour. The firm uses a loaded labour rate of £26.45 and an overhead absorption rate of £15 per hour. The job actually took 120 hours.

Cost Estimate £ Actual £
Materials 4,300 4,300
Labour (100 hours estimated, 120 actual, at £26.45) 2,645 3,174
Electrician (subcontract) 900 900
Skip hire 350 350
Overhead at £15 per hour 1,500 1,800
Total cost 9,695 10,524
Price 12,000 12,000
Job profit 2,305 (19.2%) 1,476 (12.3%)

The 20 hour overrun cost £829 of profit (20 × £26.45 plus 20 × £15). The useful question is why: a site survey that missed an uneven wall, a design change the customer was not charged for, or materials arriving late. Each answer points to a different fix, from better survey checklists to a written variation procedure.

How does job costing connect to the year end accounts?

Jobs in progress at the year end raise accounting questions that the job ledger helps answer. Under FRS 102, which applies with revised revenue requirements for accounting periods beginning on or after 1 January 2026, paragraph 23.116 says costs of fulfilling a contract are accounted for under the relevant section for those costs, such as Section 13 on inventories. Where no other section applies, paragraph 23.117 requires them to be recognised as an asset only if they relate directly to an identifiable contract, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. Paragraph 23.118 says costs relating to obligations already satisfied are expensed as incurred.

For service businesses carrying work in progress at cost, FRS 102 paragraph 13.14 limits that cost to the labour of people directly engaged in providing the service, including supervisors, and attributable overheads, excluding profit margins and non attributable overheads. Whether revenue is recognised over time or when the job is complete is covered in contract revenue over time and work in progress for service businesses.

A loss making contract also has an accounting consequence. FRS 102 Section 21 describes an onerous contract as one where the unavoidable costs of meeting the obligations exceed the economic benefits expected, and the cost of fulfilling it includes the incremental costs plus an allocation of other costs that relate directly to fulfilling contracts. A job cost report that forecasts the remaining costs is often the first place an onerous contract is spotted; see onerous contracts.

How should you use the results?

ICAEW’s practice guidance on recovery rates makes a point that applies to any project business: losses on under recovered jobs do not appear as a line in most profit and loss accounts and are largely a hidden cost. Its example is a firm with £400,000 of fees at an 85% recovery rate, which has actually done £470,000 of work at full rates. The guidance suggests reviewing every job with poor recovery to find what went wrong, reviewing the jobs with excellent recovery to see what can be repeated, and giving staff a time budget for their part of each job.

In practice, a monthly job profitability report should rank completed jobs by margin, show estimate against actual for hours and materials, and group results by job type, customer and estimator. Patterns tell you more than single jobs: if every bathroom job overruns on tiling hours, the estimating template is wrong.

What mistakes come up most often?

  • Costing labour at the basic wage. Employer National Insurance, pension, holiday and non productive time are real costs of every hour sold.
  • No variation procedure. Extra work requested on site is done and never invoiced, so it shows up only as an overrun.
  • Coding costs to the wrong job or to general overheads. This makes some jobs look better and others worse than they were.
  • Reviewing only at completion. On long jobs, compare cost to date and forecast cost to complete with progress each month, while there is still time to act.
  • Ignoring under absorbed overhead. If fewer hours are booked than the overhead rate assumed, job margins look better than the business really performs.
  • Treating job profit as cash. Retentions, staged payments and slow paying customers mean a profitable job can still strain cash; see working capital management.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.