The labor rates are generally known with certainty over a twelve -month period , but from then on are only estimates . How can a company predict salary structures five years hence ? If the company underestimates the salary structure , increased costs and decreased profits will occur. If the salary structure is overestimated, the company may not be competitive ; if the project is government funded , then the salary structure becomes an item under contract negotiations In this regard , the development of the labor rates to be used in the projection is based on historical costs in business base hours and dollars for the most recent month or quarter. Average hourly rates are determined for each labor unit by direct effort within the operations at the department level . The rates are only averages and include both the highest -paid employees and lowest -paid employees , together