BUSINESS
How to Estimate Labor Burden
Contractor method for turning base wages into a fully burdened hourly rate.
The hourly wage you pay is not the hourly cost you need to charge. Payroll taxes, workers comp, benefits and small extras add a burden percentage that changes your real labor rate and your bids.
THE SHORT ANSWER
How do you calculate labor burden?
Add workers comp, payroll taxes, benefits and other costs as a percentage of base wage. A $28/hr wage with 27% total burden becomes a $35.56/hr fully burdened rate.
List every employer cost
Start with workers compensation, payroll taxes, health and retirement benefits, and training or equipment costs. Each is a percentage of the base wage.
- Workers comp
- Payroll taxes
- Benefits and paid leave
- Training and gear
Sum the burden percentage
Adding 5% workers comp + 8% payroll + 10% benefits + 4% other gives a 27% burden. Apply it to the base wage to get the loaded rate.
Compute the loaded rate
At $28/hr, a 27% burden makes the real cost $35.56/hr. That is the number to use in estimates, not the base wage.
Extend it to annual cost
At 2,080 hours a year the fully loaded annual cost is roughly $73,965. Use the Labor Burden Calculator and keep the burden percentage current every quarter.