How to Calculate Your Fully-Burdened Labor Rate

Why base wage is the wrong number to bid

If you pay a journeyman 30 dollars an hour, that is not what he costs you. Before he swings a hammer you are also paying the employer share of his payroll taxes, his workers compensation premium, a slice of your general liability insurance, his benefits, and the paid hours when he is not producing — holidays, vacation, sick time, and training.

Estimators who bid the base wage and add a flat fudge factor are guessing. The fully-burdened rate replaces the guess with a number you can defend, and the gap between the two is real money you either capture or hand to the owner for free on every hour of every job.

The components of labor burden

The first four are added on top of the wage. The last one works differently: it reduces the productive hours you can divide by, which raises the effective rate. Both effects push the real cost above base wage.

• •Payroll taxes — the employer share of FICA (Social Security and Medicare, 7.65 percent of wages), plus federal and state unemployment (FUTA and SUTA). SUTA rates and wage bases vary by state and by your experience rating.
• •Workers compensation — a premium set per 100 dollars of payroll, varying widely by trade classification. Roofing and steel erection cost far more than light interior work.
• •General liability insurance — often allocated to labor as a cost per payroll dollar.
• •Benefits — health insurance, retirement match, union fringes, tool or vehicle allowances.
• •Paid non-productive time — holidays, vacation, sick days, and training. The worker is paid but produces no billable hours, so this cost must be spread across the hours he does produce.

A worked example

Start with a base wage of 30 dollars an hour for a full-time worker scheduled at 2,080 hours a year. Add up the annual burden costs:

• •Base wages: 30 dollars times 2,080 hours = 62,400 dollars.
• •Payroll taxes at roughly 10 percent of wages (FICA plus unemployment): about 6,240 dollars.
• •Workers comp at, say, 8 dollars per 100 of payroll: 8 percent of 62,400 = about 4,992 dollars.
• •General liability allocated at 1 percent of payroll: about 624 dollars.
• •Benefits (health plus retirement) at 6,000 dollars: 6,000 dollars.
• •Total annual cost: 62,400 + 6,240 + 4,992 + 624 + 6,000 = 80,256 dollars.

From annual cost to an hourly rate

Now divide by productive hours, not scheduled hours. If the worker takes two weeks vacation, a week of holidays, and a few sick and training days — call it 200 non-productive hours — he produces about 1,880 hours a year.

Fully-burdened rate = 80,256 dollars divided by 1,880 productive hours = about 42.69 dollars per hour. Against a 30-dollar base wage, that is a burden of roughly 12.69 dollars, or about 42 percent. Bid this work at 30 dollars and you lose almost 13 dollars on every hour before you have earned a dime of profit.

Turning it into a burden percentage you can reuse

Once you have the burdened rate, express it as a multiplier so estimators can apply it fast. Burden percentage = (burdened rate minus base wage) divided by base wage. In the example, 12.69 divided by 30 is about 42 percent, so the multiplier is 1.42.

Calculate this per trade and per state, because workers comp and unemployment rates swing the number hard. A roofer in a high-comp classification might carry 60 percent or more, while a low-risk interior trade might sit near 25 percent. A single company-wide burden factor will overcharge safe work and undercharge dangerous work — exactly backward.

• •Rebuild your burden rates at least annually, and whenever your comp experience rating or benefit costs change.
• •Use productive hours, not 2,080, in the denominator — counting paid-but-idle hours as productive understates the rate.
• •Carry overtime separately; the wage premium changes the math and should not hide inside an average.

Where the burdened rate has to show up

A burden rate only earns its keep if the same number flows from the estimate into the field and back. Bid at the burdened rate, then cost the job at the burdened rate, so your job cost reports compare apples to apples. If you estimate burdened but cost at base wage, every labor code will look like a phantom gain and you will never see the real fade.

In Field PM, field hours from the time clock and daily reports convert to cost at your burdened rate, so job costing, productivity, and forecasting all reflect what the labor truly costs rather than the wage on the check. You can sanity-check your number with the free labor burden calculator before you lock it into your estimating.