What labor burden is
Labor burden is everything an employee costs you beyond their hourly wage: payroll taxes, workers’ compensation, unemployment insurance, health insurance, retirement contributions and the other costs that come with having someone on the crew. It’s usually expressed as a percentage of wages.
A field employee paid $30 an hour almost never costs $30 an hour. Once burden is added, and you account for paid time off and hours that can’t be billed to a customer, the real cost per billable hour is often 50% to 70% higher than the wage.
How the calculator works
- Gross wages = hourly wage × paid hours, including paid holidays, vacation and sick days.
- Employer payroll taxes: Social Security at 6.2% (on wages up to $184,500 in 2026), Medicare at 1.45%, federal unemployment (FUTA) at 0.6% of the first $7,000, and state unemployment at your rate up to your state’s wage base.
- Workers’ comp = your rate × gross wages ÷ 100.
- Benefits and other costs = health insurance, retirement match and anything else you spend per employee.
- Hours actually worked = paid hours − paid days off. Billable hours = hours worked × (1 − non-billable %).
- True cost per billable hour = total yearly cost ÷ billable hours.
Why it matters for pricing
If you estimate labor at the wage rate, every hour you sell is underpriced before overhead even enters the picture. Use the true cost per billable hour in your estimates, then add overhead and profit. Our hourly rate calculator takes it from there.
Labor burden also belongs in your job costs. When payroll taxes and workers’ comp sit in overhead instead of being allocated to jobs, job reports look more profitable than they are. That’s one of the first things we fix in job-cost reporting.
Things that change the number
- Workers’ comp class codes. Roofing and other high-risk trades can pay several times the rate of an electrician or HVAC tech.
- Your state unemployment rate, which changes each year with your claims history.
- Overtime. Time-and-a-half raises wages, and payroll taxes rise with it.
- Non-billable time. Every hour spent driving, at the shop or on warranty callbacks is paid but not billed.
Common questions
What is a typical labor burden rate for contractors?
Many contractors land somewhere around 25% to 40% of wages for taxes, insurance and benefits, but it varies widely with trade, state, workers’ comp class codes and the benefits you offer. Calculate your own rather than relying on a rule of thumb.
Is labor burden a direct job cost or overhead?
For field employees, it’s best treated as a direct job cost, applied to jobs along with wages. Office and admin payroll, and its burden, belongs in overhead.
Does labor burden include paid time off?
Paid time off is part of gross wages, so it raises payroll taxes and workers’ comp. It also reduces the hours available to bill, which is why this calculator shows the cost per billable hour.
Why is the cost per billable hour so much higher than the wage?
Because you pay for every hour on the payroll, including holidays, vacation, drive time and shop time, but you can only bill customers for some of them. The yearly cost is spread over fewer hours.
This calculator gives estimates for general planning. It isn’t tax, legal, lending or accounting advice for your specific situation, and lenders may calculate figures differently.