Labor Burden Calculator

Labor burden is everything an hour of work costs the employer on top of the wage itself: the employer's half of Social Security and Medicare, federal and state unemployment tax, workers' compensation premium, and any insurance, retirement or other benefits. The burden rate states that total as a percentage of wages; the fully burdened rate is wages plus burden divided by the hours actually worked on jobs. That last figure is the one an estimate has to carry, because hours paid for vacation, holidays and training cost the same money but produce no billable work — so a $30 wage is never a $30 cost, and dividing by paid hours instead of productive hours understates it again.

1. 01

   Enter the wage and the hours

   Start with the hourly wage and the hours the employee is paid for in a year — 2,080 is a full-time year, 40 hours across 52 weeks. Then enter the paid hours that are not spent on a job: PTO, holidays, training, shop time. What is left is the productive hours the cost has to be spread over.

2. 02

   Set the tax year

   The year selects the Social Security wage base, the cap above which the 6.2% Social Security portion stops. Medicare has no cap. The federal rates are already figured in — you do not enter them.

3. 03

   Add your state and insurance rates

   State unemployment (SUTA) rate and wage base come from your state and your own experience rating; workers' compensation is quoted per $100 of payroll at the employee's class code. Both are blank until you type yours, because neither has a national figure that could be filled in honestly.

4. 04

   Read the cost per productive hour

   The results show annual wage, annual burden, the burden rate as a percentage of wages, and the fully burdened cost per paid hour and per productive hour, with every component broken out so you can see which piece is driving it.

What counts as labor burden?

The employer's costs of employing someone, beyond the wage: the employer half of FICA (Social Security and Medicare), federal unemployment tax (FUTA), state unemployment tax (SUTA), workers' compensation premium, health insurance, any retirement contribution, and the per-employee costs that follow the person rather than the job — tools, phone, uniforms, licensing, a vehicle allowance. Overtime premiums and bonuses are wages, not burden, but they raise the wage base the tax and comp percentages are figured on.

How do you calculate a fully burdened labor rate?

Add the annual wage and the annual burden, then divide by productive hours. Wage: hourly rate × paid hours per year. Burden: each employer cost figured on that wage. Productive hours: paid hours minus paid hours not spent on a job. So a wage of $30 across 2,080 paid hours is $62,400; if burden comes to $12,000 and 160 hours go to PTO and holidays, the burdened rate is $74,400 ÷ 1,920 = $38.75 per productive hour.

Why divide by productive hours instead of paid hours?

Because the non-productive hours still have to be paid for out of the jobs. If you spread the cost across all 2,080 paid hours, every hour you bill is short by the share belonging to the vacation and holiday hours you cannot bill. Dividing by productive hours puts that cost where it gets recovered. Both figures are shown here: the paid-hour rate is what payroll costs per hour on the clock, the productive-hour rate is what an estimate has to carry.

What is the employer's share of payroll taxes?

The employer matches the employee's FICA exactly: 6.2% for Social Security up to that year's wage base, plus 1.45% for Medicare with no cap — 7.65% combined (IRC §3111). On top of that, FUTA is 6.0% of the first $7,000 of each employee's wages, against which an employer in a state with no credit reduction takes a 5.4% credit for state unemployment tax paid, leaving 0.6% effective — a maximum of $42 per employee per year (IRS Instructions for Form 940).

Why are the state unemployment and workers' comp rates blank?

Because they are yours, not anyone's average. SUTA rates are assigned by your state and move with your experience rating, and each state sets its own taxable wage base. Workers' compensation is priced per $100 of payroll by class code, so a framer, an electrician and an office bookkeeper at the same wage carry very different premiums. Both come off your own rate notice and comp policy.

Should labor burden include overhead?

No — keep them separate. Burden is the cost of the person: the taxes, insurance and benefits attached to their wage. Overhead is what the business costs whether or not that person is on a job: the office, the truck fleet, the phones, the software, your unbilled time. Mixing them makes it impossible to see whether a job lost money on labor or on running the company. Load the labor rate with burden, then carry overhead and profit as markup on top — the markup and margin calculator on this site handles that half.