Labor burden: how to calculate your true hourly labor cost
If you bid labor at the wage you pay, you're losing money on every hour. On top of wages, employers pay payroll taxes, insurance, benefits and paid time off. Together these are called labor burden.
- Burdened rate = (wages + all employer labor costs) / hours actually worked on jobs.
- Payroll taxes are only part of it; workers' comp and benefits often cost more.
- Recalculate at least once a year and whenever your insurance renews.
What goes into labor burden
- Social Security and Medicare (FICA): the employer pays 6.2% Social Security (up to the annual wage base) and 1.45% Medicare, 7.65% combined. See IRS Topic 751: Social Security and Medicare withholding rates.
- Federal unemployment (FUTA): 6.0% on the first $7,000 of each employee's wages, usually reduced by a credit for state unemployment taxes. See IRS Topic 759: Form 940, federal unemployment (FUTA) tax.
- State unemployment (SUTA): rates vary by state and your claims history.
- Workers' compensation: priced by state and job classification; trades like framing and roofing cost more than office work.
- General liability insurance tied to payroll (if your policy is rated on payroll).
- Benefits: health insurance, retirement contributions.
- Paid time off: holidays, vacation and sick time that you pay but that isn't billable.
- Non-productive time: training, shop time, travel and safety meetings that you pay for but can't bill directly.
For context on how big benefits are relative to wages nationally, see the BLS Employer Costs for Employee Compensation survey.
A worked example (illustrative numbers)
| Item | Per year |
|---|---|
| Wages: $30/hr x 2,080 paid hours | $62,400 |
| FICA 7.65% | $4,774 |
| Unemployment taxes (example) | $600 |
| Workers' comp (example rate) | $4,500 |
| Health and retirement (example) | $9,000 |
| Total cost | $81,274 |
If 10 days of holidays and vacation plus about 80 hours of shop and training time are paid but not billable, billable hours are about 2,080 - 80 - 80 = 1,920. Burdened cost = $81,274 / 1,920 = about $42.33 per billable hour, roughly 41% above the $30 wage. Your own numbers will differ; use your actual rates.
Using it in your bids
- Price labor at the burdened rate, not the wage.
- Then add overhead and profit on top. See markup vs. margin.
- Keep separate rates for crews with different classifications (workers' comp codes differ).
Related: bid-day checklist.
Published October 25, 2026. We do not use affiliate links on this page; see our Affiliate Disclosure.